Shake Shack Inc (NYSE: SHAK) is an industry-leading
restaurant chain that boasts an underapreciated path to growth, at least according to analysts at Wedbush who turned bullish on the
stock after its first-quarter earnings report.
Wedbush's Nick Setyan upgraded Shake Shack's stock rating from Neutral to
Outperform with a price target boosted from $33 to $43 given its industry leading EBITDA growth profile in 2018 and beyond.
EBITDA Outlook
According to Setyan, Shake Shack's EBITDA is expected to grow by 29 percent in 2018, which is notably higher than the group
average of just 17 percent. Beyond 2018 the analyst expects the restaurant
chain to sustain a 20 percent EBITDA growth rate.
Setyan also believes Shake Shack's EBITDA isn't at risk from rising beef prices. Specifically, the company is in a strong
position to raise its menu prices to counter commodity prices and consumers could favorably respond given the low pricing relative
to historical levels. Also, rising beef prices could "curtail intense discounting" within the quick service restaurant (QSR) burger
chains, which benefit Shake Shack's competitive positioning.
Achievable Guidance
Setyan's upgrade is also partially based on expectations for Shake Shack to achieve the company's reset comp guidance.
Management lowered its 2017 same-store sales growth guidance to be around flat from a prior range of 2 to 3 percent post-Q1.
This does imply a "modest" 1 percent average growth for the final three quarters of 2017, a guide that is achievable given: 1)
higher transactions from the mobile app, 2) menu innovation and 3) average check growth.
Bottom line, the analyst is confident that Shake Shack will deliver upside to current EBITDA estimates, which makes the stock's
valuation attractive at current levels.
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Image Credit: By m01229 from USA (Shake Shack burger and fries) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons
Latest Ratings for SHAK
Date |
Firm |
Action |
From |
To |
May 2017 |
Wedbush |
Upgrades |
Neutral |
Outperform |
Mar 2017 |
Wedbush |
Upgrades |
Underperform |
Neutral |
Aug 2016 |
SunTrust Robinson Humphrey |
Upgrades |
Neutral |
Buy |
View More Analyst Ratings for
SHAK
View the Latest Analyst Ratings
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