Buffalo Wild Wings Takes a Dive: Is the Stock a Buy?

Though shares of Buffalo Wild Wings (NASDAQ: BWLD  ) rose more than 4% in Monday's after-hours trading following a strong quarterly report from the company, the stock fell into a tailspin Tuesday morning after a pair of analyst downgrades stemmed investors' excitement.

Sure enough, while Deutsche Bank raised its price target on the firm to $105 from $95 per share, the market drove shares of B-Wild down more than 4% after analysts at both Sterne Agee and KeyBanc downgraded the stock to "neutral" from "buy."

Image source: Buffalo Wild Wings

So what's an investor to do? 

The numbers
For the first quarter, while revenue increased 21.2% from the year-ago period to $304.4 million, B-Wild's net earnings actually decreased 10.2% year over year to $16.4 million. Earnings per diluted share also fell 11.2% to $0.87.

Meanwhile, same-store sales increased 1.4% at Buffalo Wild Wings' company-owned restaurants and 2.2% at franchised locations. While that still fell short of fast-casual competitor Panera Bread (NASDAQ: PNRA  ) , which posted company-owned same-store sales growth of 3.3%, CEO Sally Smith reminded investors that her company still outpaced the negative same-store sales trend prominent in the casual-dining category as a whole. What's more, remember that in February, B-Wild management had said same-store sales for the first six weeks of Q1 were down 2.8%, so ending Q1 in positive territory reflected a huge improvement for the chain.

Going forward
Even better, comparable sales have been even stronger so far in the second quarter and currently stand at 5.2% and 5.8% for company-owned and franchise restaurants, respectively.

Even even better, while first-quarter wing costs remained frustratingly high, management also stated that it's finally seeing some moderation in prices, as the company expects to pay an average of $1.75 per pound in April and May. For those of you keeping track, that's nearly 17% lower on a sequential basis, and nearly 8% less than their cost around this time last year.

In addition, Buffalo Wild Wings opened 14 new company-owned restaurants and spent $10 million to acquire three franchised businesses, while at the same time closing one of its older locations.

Finally, cash flow from operations was $28 million for the quarter, and capital expenditures came in at $35 million, leaving the company with around $14.8 million in cash with no debt on its balance sheet. While I'd love to see that cash balance increase in spite of their expansion, the decrease isn't particularly alarming, considering Buffalo Wild Wings remains solidly profitable and boasts a decent return on capital of around 15%.

In the end, Smith concluded she's confident the company will be able to achieve 17% net earnings growth for 2013, which equates to 25% growth on a 52-week basis.

Put on your bib and stay a while
So don't let today's pullback fool you (with a lower-case "f"); all things considered, I'm sticking to my guns to say shares of Buffalo Wild Wings could be a great long-term investment, even as they currently trade hands at nearly 30 times trailing earnings and 21 times forward estimates. Over the long term, the sky's the limit for this wing-maker.

More expert advice from The Motley Fool
Investors can be forgiven for thinking that a company that has returned almost 2,500% since going public probably has its best days behind it. But in the case of Panera Bread, there's reason to believe that the best is still yet to come. The stock has been on an absolute tear over the past five years, and you're invited to find out why -- and what else there is to look forward to -- in The Motley Fool's brand-new premium report on Panera. Included are key areas that investors must watch, as well as opportunities and threats facing the company both today and in the long term. Don't miss out on this invaluable investor's resource -- simply click here now to claim your copy today.


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