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Shares of Buffalo Wild Wings, Inc. increased nearly 2% in yesterday’s trading session after the company announced an increase to its share repurchase program for an additional $400 million, bringing the cumulative authorizations to $900 million. This new share repurchase authorization depicts the company’s initiative to enhance shareholders’ value.
The company repurchased approximately $127 million of common stock during the fourth quarter of 2016, under the authorization announced in Aug 2016. As of Dec 25, 2016, the company had $242 million outstanding under the authorization.
Buffalo Wild Wings’ financial strength allows it to execute share repurchases successfully. As of Sep 30, 2016, the company had cash worth $14.76 million, up 32% from the 2015-end level. Thus, the company intends to fund the program with a combination of cash as well as debt.
The board of directors also announced that it intends to achieve a debt to EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) leverage ratio of 1.5 by the end of 2017. Previously, the company had targeted achieving this leverage ratio by the end of 2018.
The additional share buyback authorization and the targeted leverage ratio are an attempt at rebalancing the company’s debt and equity to optimize its cost of capital. Historically, debt has been a cheaper mode of financing than equity for any company. Therefore, by increasing the percentage of debt the company aims to bring down the cost of capital.
Since its last earnings release, shares of Buffalo Wild Wings has increased 13.6%, while the Zacks categorized Retail-Restaurants industry gained only 0.2% in the same time frame.
However, Buffalo Wild Wings’ earnings and revenues have been mostly missing the Zacks Consensus Estimate in the trailing seven quarters. Estimates have also been moving down ahead of the company’s fourth quarter earnings release. Current quarter and current year estimates have moved down 3% and 0.8%, respectively, over the past month.
Nevertheless, going forward, share buybacks are expected to benefit the company’s earnings per share, book value as well as shareholder equity on the back of reduction in the number of shares outstanding. This is expected to reinvigorate the Zacks Rank #4 (Sell) company.
Bob Evans Farms, Inc. is a Zacks Rank #1 company. Its earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 14.74%.
Wingstop, Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It posted positive earnings surprises in all of the last four quarters, with an average beat of 11.99%.
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Buffalo Wild Wings Extends Share Buyback by $400M
Shares of Buffalo Wild Wings, Inc. increased nearly 2% in yesterday’s trading session after the company announced an increase to its share repurchase program for an additional $400 million, bringing the cumulative authorizations to $900 million. This new share repurchase authorization depicts the company’s initiative to enhance shareholders’ value.
The company repurchased approximately $127 million of common stock during the fourth quarter of 2016, under the authorization announced in Aug 2016. As of Dec 25, 2016, the company had $242 million outstanding under the authorization.
Buffalo Wild Wings’ financial strength allows it to execute share repurchases successfully. As of Sep 30, 2016, the company had cash worth $14.76 million, up 32% from the 2015-end level. Thus, the company intends to fund the program with a combination of cash as well as debt.
The board of directors also announced that it intends to achieve a debt to EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) leverage ratio of 1.5 by the end of 2017. Previously, the company had targeted achieving this leverage ratio by the end of 2018.
The additional share buyback authorization and the targeted leverage ratio are an attempt at rebalancing the company’s debt and equity to optimize its cost of capital. Historically, debt has been a cheaper mode of financing than equity for any company. Therefore, by increasing the percentage of debt the company aims to bring down the cost of capital.
Since its last earnings release, shares of Buffalo Wild Wings has increased 13.6%, while the Zacks categorized Retail-Restaurants industry gained only 0.2% in the same time frame.
However, Buffalo Wild Wings’ earnings and revenues have been mostly missing the Zacks Consensus Estimate in the trailing seven quarters. Estimates have also been moving down ahead of the company’s fourth quarter earnings release. Current quarter and current year estimates have moved down 3% and 0.8%, respectively, over the past month.
Nevertheless, going forward, share buybacks are expected to benefit the company’s earnings per share, book value as well as shareholder equity on the back of reduction in the number of shares outstanding. This is expected to reinvigorate the Zacks Rank #4 (Sell) company.
Other Stocks to Consider
Some better-ranked stocks in this space include:
Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) sporting a Zacks Rank #1 (Strong Buy). It has seen current year estimates rise 6.2% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bob Evans Farms, Inc. is a Zacks Rank #1 company. Its earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 14.74%.
Wingstop, Inc. (WING - Free Report) carries a Zacks Rank #2 (Buy). It posted positive earnings surprises in all of the last four quarters, with an average beat of 11.99%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>