1. Investment Thesis
Although BWLD missed their guidance figures, there is still
considerable growth in revenue that may have trickled down
to help strengthen their EPS. BWLD missed their Q1 guidance
figure for revenue as well as their net income, but still managed
to increase their revenues by 19.7% when compared to prior
year’s Q1 figures. This increase in revenues is directly
attributable to their increase in their bottom line, which in Q1
2014 EPS and Q1 2015 EPS were $1.49 and $1.52 respectively.
Chicken prices are having an adverse effect on BWLD’s
bottom line. Chicken prices have been steadily increasing since
2014 Q3 price of $1.50 per pound to 2015 Q1’s price of $2.08 per
pound. This increase of $0.58 has been fueled by the increase in
demand for chicken, as an alternative source of protein. This
price increase has drastically effected BWLD’s restaurant gross
profit margin, which in 2014 Q3 and 2015 Q1 were 72.7% and
71.5% respectively. Despite this increase in chicken prices,
BWLD’s has still managed to increase their EPS. Although, the
management team’s outlook remains at 18% year of year growth
in their bottom line, we believe that 14% is a more realistic
number if chicken prices were to remain constant.
BWLD’s continues to show that they are a proven growth
story, which is apparent in today’s stock. Over the past 12
months, BWLD has seen a sharp 37.71% increase in their stock
price. Many positive factors have allowed BWLD to realize such
stock price growth. These factors, of which are taken into
account by the market, include strong revenue growth, brand
recognition, proven business model, continued EPS
improvement, and with little to no debt.
Buffalo Wild Wings, Inc. (BWLD) Price Target: $195.33 Rating: BUY
Group 6 5/4/15
Zach Amrein (913)530-5515
Z_Amrein@yahoo.com
Madison Myers (785)217-3152
madison.myers@ku.edu
Sam Plank (314)775-9232
samplank@ku.edu
Endong Wang (785)979-2608
E526W404@ku.edu
Company Overview
Buffalo Wild Wings is an American Bar and Grill that was
founded in 1982 in Columbus, Ohio. They currently have
1,094 restaurants in the United States and have plans to
expand outside of the United States. They have already
moved to Canada, Mexico, and a few other places around
the world and they believe that there is still plenty of room
to grow in the United States. There are a variety of
different ways that they have found to differentiate their
business by utilizing a management team that is very
diverse.

2. Buffalo Wild Wings, Inc. (BWLD) Price Target: $195.33 Rating: BUY
BWLD 5 Year Cumulative Return
We used IWM (Russell 2000 Index) and PSCD
(SmallCap Consumer Discretionary Portfolio) to
compare with BWLD (Buffalo Wild Wings Inc.) over
the past 5 year Cumulative Total Return. As the graph
shows, we can clearly figure out for every 100 dollars
invested in May 4th 2011, BWLD would outperform
with $251.21 at May 1st 2015, which has 20%
compounded annual return rate, while IWM and PSCD
have 12.67% and 8.87%, respectively. Thus, the
premium value created by BWLD over 5 years is
much more than the premium value of IWM or PSCD.
The historical data reveals that BWLD is a successful
restaurant with large operation growth and business
expansion. Also, we have confidence that in the
foreseeable future, although BWLD’s stock price
dropped down huge due to lower-than-expectation
earnings report, the 20% increasing revenue does
verifies that BWLD is still a strong growing casual
restaurant with delicious food and an atmosphere
centered around sports that will continue to see
substantial growth.
Revenue Growth
Recently, on April 28, 2015, BWLD has come under
fire for missing their Q1 2015 earnings guidance on
both the top line and bottom line figures. This
deviation from the guidance has investors worried
about their ability to recover from Q1 and hit their
annual guidance numbers for fiscal year 2015. This
worrisome that has created a cloud of uncertainty
around BWLD’s stock is responsible for the recent
decline in BWLD’s stock price over the past week. On
April 28, 2015 BWLD’s stock price was at $183.70, on
the following day April 29, 2015, BWLD’s stock price
had dropped $160.25. BWLD’s miss on their guidance
earnings frightened the market. Despite missing their
guidance, BWLD’s revenues have increased by 19.7%
in Q1 2015 from the prior year’s revenues. Revenue
growth of 19.7% is a noteworthy achievement, it may
not be what they or any analyst had predicted but the
company is still growing, and growing at a
considerable pace. Management has kept its 2015
guidance for 18% increase in net income by the end of
the fiscal year. We believe that the decrease in the
stock price has created a timely opportunity to invest
in a stock that is trading below its market value.
Management upholding their 2015 guidance for net
income, coupled with BWLD's continued revenue
growth and bottom line improvements of their EPS, we
believe now is the time to invest in BLWD’s stock in
order to take advantage of the market’s reaction to
BWLD’s earnings report.
Diverse Management
One thing that really sticks out when looking at the overall structure of BWLD is the composition of their
management. Out of the eight executives on the management team there are five women. This is something we
don’t see very often when looking at large American corporations. For example, when looking at CEO’s of Fortune
500 Companies, not even 4% are female. This provides them with a great balance when looking at potential
business decisions. The only thing that sticks out to us as a negative about the management team is that they only
hold about 1.1% of total shares, but we don’t look at this as being too big of an issue. Everything else seems to
show that the management team has set BWLD up for consistent growth throughout the future and we believe that
this diversity gives them a leg up. The target market for BWLD is sports fans that are for the most part men. The
majority of management not fit these criteria, however that doesn’t mean they don’t know what that audience likes.
The men on the board can put forward ideas that they think the target market might like, but the women can bring
another prospective to the table. Over time, this management team has tried so many different ways to grow their
brand and it seems that they have finally found what works best for them. They know what they are good at and
they are finally able to grow it at a scale that doesn’t appear to have a ceiling by focusing on 3 simple things: beer,
food, and sports.

3. Buffalo Wild Wings, Inc. (BWLD) Price Target: $195.33 Rating: BUY
Buffalo Wild Wings Meal Segments
Currently, B-Dubs revenue stems mainly from Dinner,
which is 49% of where sales generate. Lunch is 19%,
Happy Hour is 16%, and Late-Night is 16% as well.
On April 20, Buffalo Wild Wings announced a new
Fast Break Lunch Menu in order to capture more of
the lunch crowd that is looking for something on the
quicker side. Buffalo Wild Wings research showed that
most people only have 30 to 40 minutes from the time
they arrive to the time they leave a restaurant during
their lunch hour, which is what prompted them to
create a quicker alternative for lunch in the casual
dining segment. With the Fast Break Lunch Menu,
Customers have the ability to “pick 2” options that
provide a speedier and lighter meal than the traditional
Buffalo Wild Wings dinner one would think of. With
options such as Salads and BLTs, this new menu can
cater to every spectrum of working man and women
that don’t have a lot of time to spare on their lunch
hour. This new initiative will help Buffalo Wild Wings
capture more of the lunch market which will ultimately
lead to a boost in revenues as lunch is dwarfed by
dinners percentage of the revenue stream. Although
this new menu is going to be helpful, efficiency and
speed are their biggest challenges as this is what will
be the driver of if this new lunch time initiative will be
successful. Also, taking into consideration the staffing
and overall capacity of the restaurants will be another
concern. If the staffing and capacity can support the
speedier lunch, being able to manage the popularity of
the new menu will become difficult as they will have to
be able to support a full buffalo wild wings restaurant
while getting everyone in and out in under 40 minutes.
Chicken Wing Price Volatility
For a growing and popular restaurant, Buffalo Wild
Wings, periodically monitoring and reacting to the
change in cost of sales is the most significant thing to
maintain its profit growth. As chicken wings is the most
well-known and core serviced goods by Buffalo Wild
Wings, including traditional wings and boneless wings,
the sales of wings occupies 42% of company-owned
restaurants sales revenue. Hence, the fluctuation of
chicken wings price has significantly impact on the
cost of sales and cash flow from company-owned
restaurants. It is necessary to pay close attention to
continually monitor the cost of chicken wings price.
Based on the 10-K statistics, the 2012, 2013 and 2014
annual price per pound for chicken wings were 1.97,
1.76 and 1.55, respectively. The lowered cost of
chicken wings did a lot of contribution to the
decreasing of cost of sales as a percentage of
restaurant sales to 29.1% in 2014 from 30.7% in 2013.
However, since the fourth quarter, the cost of chicken
wings increases rapidly as the graph shows. Due to
demand, the price per pound for traditional chicken
wings drastically increased 41% versus the prior
year’s unusually low price. The increasing cost of
chicken wings is the potential risk for Buffalo Wild
Wings, which is with high probability to shrink the
gross profit margin. Also, the other problem for the
supply volume of chicken wings is the number of
wings is always limited to the number of chickens,
besides the fact that farmers can raise bigger chicken
to yield more breast or thigh meat. the good news is
Buffalo Wild Wings has already got into a modified
pricing arrangement for two-thirds of its wing supply,
which narrows the cost of the wing prices it will pay.
The arrangement can also stabilize its gross profit
margin and reduce the potential risk of cost of goods
sold.

4. Buffalo Wild Wings, Inc. (BWLD) Price Target: $195.33 Rating: BUY
Valuation Methods
DCF Terminal Growth:
Valuing a growth stock such as B-Dubs, we used a
terminal growth rate of 3% and a discount rate of 12%.
We used a terminal growth rate of 3% as we see a lot
more potential in the top and bottom lines of B-Dubs,
with their total possible capacity of stores left to be
captured, Sales per Location increasing, and lowering
Restaurant Operating Costs through efficiencies in
their stores which will help continue their high paced
growth for the foreseeable future. A 12% discount rate
was applied due to the volatility of the stock price and
the risk associated with a fluctuating stock price. With
these parameters, a price target of $197.39 was
achieved, 25.4% higher than the current price.
DCF EV/EBITDA Multiple:
An EV/EBITDA Multiple of 6x and a discount rate of
12% was used to determine the DCF EV/EBITDA
valuation of B-Dubs. Currently, B-Dubs’ EV/EBITDA
multiple is at 13.74x and we believe the long term
multiple will be 6x due to the consistent growth in Total
Revenue that we see continuing in the next 5 years
and their ability to decrease costs/store in Operating
Expenses for restaurants, Occupancy Expense, SG&A
Expense, and Pre-Opening Costs as they grow and
experience the effects of economies of scale. With
these parameters, we reached a price target of
$192.14, 22.1% Higher than the current price.
Valuation Methods
P/E Valuation:
The Competitors that we used for B-Dubs were:
Panera, Chipotle, Darden Restaurant Group, Bloomin’
Brands, Brinker International, DinEquity, and Texas
Roadhouse. These competitors were used as most of
these restaurants are alternatives to Buffalo Wild
Wings in the casual dining segment of the restaurant
industry, excluding Panera and Chipotle which are in
the fast casual segment but are still alternatives. With
these comparable companies, the average P/E was
30.79, were B-Dubs P/E is 31.79. Using a Bear, Base,
and Bull case, we weighted these according to our
predictions of which scenario is most likely to happen
in the coming year for B-Dubs. For the base case, we
used B-Dubs projected 2015 EPS of 5.60 and a P/E of
31.79 to get a price of $177.87. The Bear case utilized
an EPS of 5.32 and a P/E 30.20, giving a price of
$160.53. The Bull case used an EPS of 6.07 and a P/
E of 34.97 to reach a price of $212.29. Weighing the
Bear, Base, and Bull case at 10%, 45%, and 45%, we
reached a P/E Price Target of $191.62. We weighted
the cases more towards a positive outlook as B-Dubs
believes they will have net earnings growth of 18% for
2015, where we projected only a 14% earnings growth
for 2015 while still giving us a EPS that supports a
price target of over $190.
EV/EBITDA Valuation:
Using the same peers as the P/E Valuations, the
average EV/EBITDA multiple was 13.57x, where B-
Dubs is currently at 13.74x. With B-Dubs projected
2015 EBITDA of $275 million, an Implied Enterprise
Value of $3.37 Billion was reached. B-Dubs has not
had any Long term debt outstanding in the past 5
years and we have no reason to believe they will take
on any debt because of their positive Free Cash Flows
and Cash of $112 Millions, a Implied Market Cap of
$3.8 Billion and 19.2 millions shares outstanding
created a target price of $200.16. With the spike of the
cost of chicken, EBITDA will likely suffer from the
higher cost of sales associated with the higher cost of
chicken, but still gives a price target of $200 even with
the major hit in a large cost driver.
Price Target & Recommendation
With the four price target established through the various methods, we triangulated these 4 methods at an equal
weight of 25% each. We weighted them equally as they are all relatively close to one another, and this will more
accurately derive a Price Target that is seen as a combination of methods as opposed to biasing one method over
another. A Price Target of $195.33 was derived using this method, which undervalues the current stock price by
24.1%, which reaffirms our recommendation of a BUY. With all of the growth potential and with the recent drop in the
stock price, Buffalo Wild Wings is relatively cheap as of right now and is expected to go up in the next year, if our
conservative projections hold true and chicken prices do not escalate much more.

5. Sources
1. BWLD 2014 10K 2. BWLD 15Q1 Conference Call 3. Capital IQ BWLD Financials
4. BWLD 15Q1 Earning Release 5. BWLD Investor Presentation 6. The Street ‘BWLD Stock Gain on Higher Analyst Ratings’
Buffalo Wild Wings, Inc. (BWLD) Price Target: $195.33 Rating: BUY
Pro Forma Summary
Revenue Build including Total Restaurants and Revenues Per Location