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Buffalo Wild Wings Stock Has More Room to Run!

Roark Capital will likely make a higher bid for BWLD stock soon

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Chickens can fly, right? Buffalo Wild Wings (NASDAQ:BWLD) stock is roaring higher today after reports leaked that private equity firm Roark Capital has made an offer of more than $150 per share to buy the struggling restaurant chain.

BWLD stock is up about 25% to $146 on the news.

Have you missed the rally? Not entirely. I think there is more upside in this name.

Here’s why.

Roark Capital Is Hungry for Chicken

The PE firm which made the takeover offer, Roark Capital, is heavily concentrated in the restaurant sector. Roark Capital’s restaurant portfolio is very diverse and includes quick-casual burger chains (Carl’s Jr/Hardee’s), formal dining chains (Il Fornaio), sandwich shops (Jimmy John’s), and BBQ restaurants (Jim ‘N Nick’s BBQ).

But one notable hole in the portfolio since the private equity firm exited its position in Wingstop Inc (NASDAQ:WING) is chicken. That is why Roark Capital tried to acquire Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI) last year. They lost that bid to Restaurant Brands International Inc (TSE:QSR).

Consequently, I think Roark Capital is really hungry for some chicken.

And why shouldn’t they be? Wingstop was a really good investment for them. Roark Capital acquired Wingstop for somewhere between $80 and $90 million in 2010. The fast-growing chicken wing chain continued its robust growth trajectory, had a big IPO in 2015, and Roark Capital exited its position for somewhere north of $550 million in 2015-16.

That is more than 6.5-times return in 5-6 years.

Long story short: after a big run with Wingstop, Roark is looking for its next big chicken play. The Popeyes acquisition didn’t come through because Roark got outbid by Restaurant Brands. I don’t think Roark will let that happen again. Thus, it looks like a higher bid for Buffalo Wild Wings is in the cards.

Why Stick With BWLD Stock?

The $150 takeover offer was made on October 13 at a 48% premium to the stock price at the time.

But on October 26, BWLD stock rallied big all on its own thanks to better-than-expected quarterly numbers. The company successfully migrated customers to boneless wings during the quarter, and that was a big win for margins. Earnings roared higher and the earnings outlook got a big boost.

BWLD stock ran from $100 to $120.

It is likely BWLD will demand a takeover price that values them on the $120 quote, not the $100 quote. That is especially true considering this stock hung out around $200 just 2 years ago.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/11/bwld-stock-has-more-room-to-run/.

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