Buffalo Wild Wings has turned into a tasty buy: RBC

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Market Blog's roundup of some of today's key analyst actions

Fear not, chicken wing lovers everywhere, the cost of chowing down on the pub favourite may not take a bigger bite out of your wallet after all.

At least, that's one of the conclusions that can be drawn from the latest views of RBC Dominion Securities analyst Larry Miller. His rethink on chicken wing inflation prompted him today to upgrade Buffalo Wild Wings, the huge U.S. chain that last year opened its first restaurant in Canada, to an "outperform" rating from "sector perform." He also aggressively hiked his price target to $95 (U.S.) from $81.

As corn prices skyrocketed over the past two years and hit record highs this past summer amid the U.S. Midwest drought, a further spike in chicken prices was widely anticipated heading into 2013. But Mr. Miller isn't seeing much evidence that restaurants are about to be smacked with higher costs, especially given that corn prices have retreated by about $1 since late August to around $7.50 (U.S.) a bushel.

That could be good news for consumers, too, given it'll ease the need for restaurants to hike menu prices to cover high costs.

"Our view is based on our conversations with restaurant operators, and chicken-based restaurants, who aren't expecting material inflation next year and on our regressions of corn and chicken prices, which point to modest if any inflation," Mr. Miller said in a research note today. "After a deep dive into the chicken complex, we think it's unlikely chicken-based inflation prevents Buffalo Wild Wings from attaining its 20 per cent growth goal in 2013."

His target of $95 would imply a stock price 25 times his estimated 2013 earnings. While that may seem lofty, he notes that it is attractive compared to other stocks within the restaurant business. "And, we think there's a reasonable chance that BLWD shares could be $100 or more, if chicken prices decline in 2013 or as investors begin to turn their attention to 2014 earnings of $4.50 (plus) mid– to late-2013."

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BMO Nesbitt Burns analyst Gordon Tait has downgraded Penn West Exploration to "market perform," citing his disappointment with costs and production volumes so far this year. He reduced his production and cash-flow-per-share forecasts for both this year and 2013. The biggest revisions were made for next year, with BMO now projecting production of 170,500 barrels of oil equivalent per day, down from 177,000 barrels.

"Penn West has a large suite of light and medium oil properties that offer significant development potential. However, until we see some improvement in capital efficiencies and operational results, we believe the company will trade in line with the market," he said.

Downside: Mr. Tait cut his price target by $3 to $17.

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Union Drilling's shares have risen about 70 per cent since early August and the stock's valuation is now much more in line with its North American land drilling peers, notes BMO Nesbitt Burns analyst Michael Mazar. He downgraded the stock to "market perform," believing that Union's shares are now fairly valued at 3.6 times his 2013 EBITDA estimates.

Downside: Mr. Mazar raised his price target by $1 to $7 (U.S.)

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BMO Newbitt Burns analyst Karen Short upgraded Safeway to "outperform" from "market perform," after a survey the bank conducted found its Just For U consumer-deal savings program is resonating with customers. The successful roll-out could lead to improving fundamentals for the grocer, she commented, and the 4.4 per cent dividend yield should help limit further downside pressure. "We believe the stock could finally work," she said.

Upside: Ms. Short has a $25 (U.S.) price target.

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TransCanada's power business is getting energized with several positive developments over the past few weeks, notes UBS analyst Chad Friess. They include a positive ruling concerning its objections to capacity payment calculations in the New York City power market, higher power prices in Alberta, and the successful start-up of the No. 1 unit at Bruce Power.

Upside: Mr. Friess raised his price target by $1 to $50 and reiterated a "buy" rating.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at #eyeonequities