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On Nov 21, we upgraded our recommendation on Buffalo Wild Wings Inc. (BWLD - Analyst Report) from Neutral to Outperform based on better-than-expected earnings growth and solid top line in the third quarter of 2013. Moreover, Buffalo Wild Wings carries a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The restaurateur has been consistently posting strong quarterly results for the past two quarters, driven by its cost-saving efforts.

In its recently concluded third-quarter 2013 results, Buffalo Wild Wings beat the Zacks Consensus Estimate for both revenues and earnings. Quarterly earnings also grew 66.7% year over year. Results in the quarter benefited from decent top-line growth and margin expansion. Total revenue also increased 27.9% year over year, led by increased restaurant sales and solid unit growth.

Following a better-than-expected performance in the third quarter, the company increased its earnings guidance for 2013. Buffalo Wild Wings now expects net earnings to grow 20% in 2013, higher than the prior estimate of 17%.

After the release of the third-quarter results, the Zacks Consensus Estimate for 2013 has gone up 3.0% to $3.75 per share during the past 30 days. Similarly, the Zacks Consensus Estimate for 2014 improved 5.2% to $4.69 per share during the same time frame.  

Reason for Positive Bias

Along with the strong third-quarter results, the company’s growth story looks attractive. Operating since 1982, Buffalo Wild Wings is considered as one of the most familiar casual dining restaurant chains in the U.S., especially among the sports fans.

Amid macroeconomic difficulties and highly competitive markets, the company has been posting positive comparable store sales (comps) for the past nine quarters, which validates its strong fundamentals.

The company has taken various initiatives like aggressive marketing program, menu launches and guest experience business model to reinvigorate its potential as a brand. Buffalo Wild Wings’ collaboration with National Collegiate Athletic Association helps it to increase its visibility as a brand and attract customers through digital and social media. Foray into the smaller prototype restaurants, PizzaRev, is also a positive for the stock.

Other Stocks to Consider

Investors interested in the restaurant industry may consider stocks like Cracker Barrel Old Country Store, Inc. (CBRL - Snapshot Report), DineEquity, Inc. (DIN - Snapshot Report) and Bob Evans Farms, Inc. (BOBE - Snapshot Report). All these companies hold a Zacks Rank #2 (Buy).

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