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On Tuesday, Morgan Stanley (NYSE:MS) upgraded Wingstop (NASDAQ:WING) stock from Equalweight to Overweight, adjusting the price target to $389 from the previous $385. The firm acknowledged the reality of slowing U.S. comparable sales (comps) for Wingstop in the near term and anticipates a minor shortfall in the fourth quarter of 2024.
Despite concerns over recent slower third-party data and challenging comparisons in the first half of the year, Morgan Stanley expressed continued confidence in Wingstop's business model.
The analysts noted that Wingstop has been conservative with pricing compared to its industry peers over the past five years, which had previously been the main obstacle in recommending the stock. However, they emphasized that other aspects contributing to long-term value, such as unit growth, are expected to perform even better going forward. With a market capitalization of $7.97 billion and operating with moderate debt levels, the company maintains a solid financial foundation.
Wingstop has advanced in terms of sales, unit growth, profitability, and has reduced leverage below historical levels. Morgan Stanley's valuation is based on a discounted cash flow (DCF) model, which has served as a reliable indicator for the stock's investment potential. The upgrade to an Overweight rating reflects the firm's view of a more appealing investment opportunity, supported by the intact drivers of long-term value.
According to InvestingPro's Fair Value assessment, the stock appears overvalued at current levels, with analyst price targets ranging widely from $180 to $468. Discover comprehensive valuation metrics and expert analysis in the exclusive Pro Research Report, available with an InvestingPro subscription.
Morgan Stanley also expressed a more optimistic outlook than other analysts regarding Wingstop's pace of unit growth and long-term comparable sales, which partly influenced the new valuation and price target. The new target of $389 is based on the DCF model, indicating the firm's confidence in the stock's future performance.
In other recent news, Wingstop has been the focus of several key developments. Bernstein, a prominent market analysis firm, highlighted Wingstop for its exceptional value proposition and industry outperformance.
This was in the context of a broader analysis of the U.S. restaurant sector, which saw a year-on-year decline in same-store sales. Raymond (NSE:RYMD) James increased Wingstop's price target from $345.00 to $375.00, maintaining an Outperform rating on the company's stock, following the announcement of a new $500 million share repurchase program.
Stifel reaffirmed its Buy rating for Wingstop, despite adjusting its earnings per share projections due to the company's financial activities. This followed the near completion of a previous $250 million share repurchase authorization and the approval of a new $500 million repurchase program. BTIG has also reaffirmed its Buy rating on Wingstop shares, expressing confidence in the company's strategic supply chain adjustments.
However, Piper Sandler reduced its price target for Wingstop to $300, maintaining a Neutral rating on the stock, following the company's third-quarter earnings call. Despite these adjustments, Wingstop reported significant growth in Q3 earnings per share of $0.88, a 35.4% increase, and a substantial 38.8% rise in total revenue to $162.5 million.
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