Feltl Maintains Hold On Buffalo Wings Following Majority Investment In Rusty Taco

In a research note published Tuesday, Feltl and Company analyst Mark Smith maintained a Hold rating on Buffalo Wild Wings (NASDAQ: BWLD) with a $155 price target, following BWLD’s announcement of a majority investment in Rusty Taco, a restaurant chain focused on street-style tacos.

Smith wrote, “We visited the Rusty Taco in Minneapolis to become more familiar with the brand. We like the fast service, quality of product and diversity of the menu featuring tacos (including breakfast options). We think this is an easily replicated brand that can produce strong unit economics. Rusty Taco is still very early in its growth with only nine current locations (five in Texas, one in Colorado and three in Minnesota) and one food truck. We think the option of breakfast items is attractive as the chain can increase day-parts and think the diverse menu reduces from any singular commodity. We visited with operations employees in the MN market and are impressed with the simplicity of the restaurant, ability to run a food truck as well as the small mix of alcoholic beverages. We think Rusty Taco can begin more aggressive growth with ample capital and a new network of potential franchisees from the BWLD system.”

Smith continued, “We think the core Buffalo Wild Wings business is healthy. As BWLD enters the important football season, we think the business is healthy and growing. We see strong demand for fantasy football draft parties and expect improved traffic as NFL and college football seasons begin in earnest. Chicken wing prices have risen slightly since the end of 2Q:14 and are now approximately flat year over year, but wing prices are still at historical norms. We think the changes to pricing of wings made over the prior two years have helped boost restaurant margin. We think the company’s initiatives to improve the customer experience are helping boost traffic. We think the continued rollout of technology (tablets, tablet ordering, server handhelds, loyalty programs and others) is helping improve customer satisfaction while potentially reducing labor expense. Additionally, we think remodels and food innovations are driving improved traffic and increasing average ticket. Smith added, “We are encouraged by the strength and potential for growth we see from emerging brands, but think they do not significantly impact the model at this point. We think the core restaurants are healthy and seeing positive trends, but think this is currently reflected in the share price.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Smith has a total average return of -3.1% and a 47.6% success rate. Smith is ranked #2891 out of 3263 analysts.

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