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Buffalo Wild Wings (BWLD) is under pressure as chicken wing prices move sharply higher to start the year. With the $2 per pound mark being surpassed with the possibility of further upside, we worry about risk to BWLD’s multiple. Hedgeye Restaurants Sector Head Howard Penney notes the difference in price change compared to 2012:

“In 2012, during the first 24 days of the year, chicken wing prices gained 14%.  For much of the remainder of last year, prices stayed within a range of roughly 180-190 cents per pound.  Year-to-date in 2013, wing prices are again moving higher: +7.2% YTD.  During the 3Q earnings call, management warned that the price of wings was trending to $2.07 for the first two months of the fourth quarter and stated that they expected it to exceed that level heading into the super bowl.”

BWLD: Playing Chicken - image004

The question is whether or not this expectation is baking in the possibility of McDonald’s expanding its testing of wings, currently in being sold in Chicago after a successful run in Atlanta, to its national system.  BWLD’s guidance for earnings growth of 20% seems dependent on a number of factors, one important one being some moderation in wing prices in 2H13, per remarks from CFO Mary Twinen in October.  MCD getting in on the act won’t help that happen.

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