Wingstop has climbed 20% this year, outpacing the 12% advance in the S&P Composite 1500 Restaurants index and chains including McDonald’s Corp., Cheesecake Factory Inc. and Domino’s Pizza Inc. However, wing prices have gradually increased more than 30% in the past month, which may impact Wingstop’s shares, analyst Nick Setyan wrote in a note.

“During periods of wing cost inflation, Wingstop’s share price tends to either stagnate or decline,” he said.

Shares of the company slumped 8% on Friday in their worst drop since May 2022.

The average price target for Wingstop among analysts tracked by Bloomberg is $204. Setyan downgraded the chain to neutral from outperform and reduced his price target to $185 from a shared-Street high of $240. The stock has six buy ratings, 15 holds and two sells, according to data compiled by Bloomberg.

Wing prices continue to be favorable compared with historical levels but are still high enough that they put estimates for second-half and 2024 cost of goods sold at risk, Setyan said, particularly if the strength Wingstop enjoys from the football season through March Madness basketball occurs. 

High wing costs also have a knock-on effect on sales, with Setyan noting that franchisees often lift prices in response, hurting transaction growth in the process. And while Wingstop has upped the mix from boneless chicken wings, and will likely increase it further, Setyan sees bone-in wings continuing to dictate franchisee pricing decisions for the foreseeable future. 

Setyan says he doesn’t see outsized risk to domestic franchised same-store sales growth estimates for the second and third quarters. Wingstop will report second-quarter earnings on Aug. 2.

–With assistance from Katrina Compoli.