Credit Suisse’s Jason West believes the emergence of an activist shareholder for Buffalo Wild Wings (NASDAQ: BWLD) is likely to provide a “floor” for the stock and “a potential win-win for shareholders, i.e., either fundamentals improve and/or restructuring comes into play.”

West upgraded the rating on the company from Underperform to Neutral, while raising the price target from $130 to $165.

Concerns Unchanged

“Our key fundamental concerns remain unchanged and were evident in BWLD's weak 2Q results. However, traditional metrics like SSS no longer seem to be driving the stock,” the analyst mentioned.

EPS Improvement

On July 25, activist investor Marcato disclosed a 5 percent stake in Buffalo Wild Wings. Following this, West believes there are three key initiatives that could drive an improvement in the EPS as well as returns, including increased leverage, refranchising and G&A cuts.

“Under a reasonable "base case" restructuring scenario, we calculate ~$1.00 of EPS accretion from these types of initiatives, or 14 percent upside on our current 2017E EPS of $6.77,” the analyst stated.

Potential For Restructuring

West also believes a change in management’s incentive compensation structure might be well received by investors.

While there is a possibility of potential restructuring and activist pressure, the analyst believes management would be slow to implement any significant change and a major restructure announcement in unlikely at the investor day scheduled for August 16.

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