Citi downgraded Wingstop Inc (NASDAQ:WING) to Neutral from Buy but raised the firm's price target on the stock to $224 from $204 in a note to clients Thursday following the company's latest earnings release.
On Wednesday, Wingstop topped consensus earnings and revenue estimates for the first quarter. However, its shares are down over 4% Thursday.
The bank told investors, "It's been a heck of a flight," but acknowledged that headwinds are on the horizon.
"The trio of sales drivers continued to win sales/traffic share for the brand throughout 1Q (and we think into 2Q), yielding better-than-expected results and higher numbers for 2023," the bank wrote. "Importantly, these are layers, not 1xers, driving customer acquisition and frequency (with a great sales-advertising flywheel to boot)."
"We continue to have confidence in WING's ability to win share going forward," it added. "However, cracks are forming in the US macro (including softer industry sales trends as of late), more challenging compares lay ahead for the brand (starting in late August), we have low visibility into how the company's large cash position may be deployed (beyond a special dividend that we have modeled) and historically low input-prices may slowly begin to march higher."
The report concluded that when married with a valuation that is approaching multi-year highs, they find it difficult to argue for a greater upside in WING shares over the near term.