We expect Dallas-based Wingstop Inc. WING to beat expectations when it reports third-quarter 2015 results on Nov 5, after the markets closes. Last quarter, the company posted a positive earnings surprise of 22.22%. This is the company second quarterly results after its IPO in June 2015.
Let us see what is in store for the company this quarter.
Why a Likely Positive Surprise?
Our proven model shows that Wingstop is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +11.11%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Wingstop has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Wingstop’s Zacks Rank #2 and +11.11% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Wingstop, which operates as a chicken wings specialist, serves classic and boneless wings with 11 bold, distinctive flavors. In the last quarter, the company reported a 9% increase in domestic same-restaurant sales.
The company has an enviable streak of 11 consecutive years of reporting positive comps. We expect the trend to continue in the third quarter as well backed by menu innovation and unit growth. Wingstop's store count has also grown nearly 20% over the past year.
However, high chicken and labor costs are likely to hurt the company’s profits in the to-be reported quarter. Avian flu in some parts of the U.S. might affect chicken supply, thereby further increasing costs. Also, higher labor costs would dent margins.
Other Stocks to Consider
Other stocks in the restaurant sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Popeyes Louisiana Kitchen, Inc. PLKI, with an Earnings ESP of +2.27% and a Zacks Rank #2.
Bob Evans Farms, Inc. BOBE, with an Earnings ESP of +2.5% and a Zacks Rank #1.
Cracker Barrel Old Country Store, Inc. CBRL, with an Earnings ESP of +0.63% and a Zacks Rank #1.
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