Best Stocks for 2016: Buffalo Wild Wings (BWLD) Still Has Time

BWLD may not be the year's best, but there's still money to make in it

By Charles Payne, Editor, Smart Investing

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This column is part of our Best Stocks for 2016 contest. Charles Payne’s pick for the contest is Buffalo Wild Wings (NASDAQ:BWLD).

I came into the year confident that Buffalo Wild Wings (NASDAQ:BWLD) would be the Best Stock for 2016. But instead, the year has been a series of disasters underscoring miscues from overconfident management and a belief system so embedded in company culture it has derailed the company.

Best Stocks for 2016 Update: Buffalo Wild Wings (BWLD) Still Has TimeSo yes, BWLD has underperformed my expectations, but that doesn’t mean we can’t still make money on it before the end of the year. We’ll talk about that shortly.

First, let’s discuss why it caught my attention in the first place.

Buffalo Wild Wings is an owner, operator and franchisor of sports-themed restaurants that feature exactly what you’d expect: wings, beer and sports on 50+ television screens at each location. Since its humble beginnings as a single restaurant in Columbus, Ohio, in 1982, BWLD has grown to include at least one restaurant in every state.

In fact, there are more than 1,190 located across the United States, Canada, Mexico and the Philippines.

The stock had been a winner throughout the years, and after a slow finish to 2015, I had expected a turnaround this year. But poor execution and food illnesses weighed on the shares, and I’ve continued to wonder out loud if CEO Sally Smith should be removed.

The last time we spoke about my pick in the Best Stocks for 2016 contest, we were still on the lookout for the year’s first earnings beat. And after the dreadful first quarter that began with management coming up short and ended with a lack of major sporting events and pricing concerns, the second-quarter report was that much more important.

BWLD Stock Makes a Move

Finally, we got what we were looking for. Earnings grew 13% over the previous year to $1.27 a share, which was indeed a beat, coming in ahead of the consensus estimate of $1.25 a share thanks to efforts to control costs and share buybacks.

On the other hand, revenue of $490.2 million was short of the Street’s expectation for $502.32 million, and I wasn’t thrilled that same-store sales were down again. In fact, the declines are getting worse for both the company-owned and franchise-owned stores.

Same-Store Sales 2Q 2016 1Q 2016 2Q 2014
Company-Owned Stores -2.1% -1.7% +4.2%
Franchise-Owned Stores -2.6% -2.4% +2.5%

 

The stock soared on the beat, and the timing couldn’t have been more perfect. I had advised my Smart Investing subscribers to add or average down on their position just four days earlier, as BWLD finally looked as if it had put in a bottom. And a week after the report hit the Street we locked in an average 12.2% win in both positions.

Still, the stock remains on my radar as there is potential for it to live up to the hype. The company needs to rebuild foot traffic initially, then return to profitability.

In the end, BWLD isn’t going to be the stock of the year, but it’s down enough for us to make really good money on the next turn.

There are several things I’m looking at. First, I like that the company has attracted interest from large investors, which means it could actually find itself in the takeover rumor mill soon. That alone isn’t enough to buy it, though, so I need to see another earnings beat (the next report is expected later in October), stronger guidance and a reversal in the same-store sales trend.

From a technical perspective, support at $150 needs to be regained, as there is little additional support down to $125.

Stay tuned.

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