Morgan Stanley Asks: How Does Shake Shack Stack Up?
In a report published Tuesday, Morgan Stanley analyst John Glass initiated coverage of Shake Shack Inc (NASDAQ: SHAK) with an Equal-weight rating and $38 price target.
According to Glass, the fundamental debate investors should focus on include:
1. Can Shake Shack's average unit volume (AUV) remain high or is margin a key driver? The analyst stated that it will take "investor education" to understand the forces limiting AUV growth but noted that the company's story "works" even as AUV's shrink.
2. Can the unit economics of the business be improved? The analyst answered that the answer is a "clear yes" if management chooses to make this a key focus.
3. How many "Shacks" can exist? The analyst explained that management's goal of 450 units is a valid objective while the company has an "unusual" international opportunity given early success in eight countries.
4. How does Shake Shack compare to the multitude of other burger restaurants? The analyst noted that the company has a "unique" positioning in the market with "high culinary and hospitality standards" that sets it apart from its competitors.
Bottom line, a $38 price target is between a $50 "bull case" and $25 "bear case" scenario. The analyst concluded by stating that "the dynamics of a small float are at work and we expect Shake Shack's large, open-ended market opportunity to sustain valuation versus many other recent restaurant IPO's."
Latest Ratings for SHAK
Feb 2015 | William Blair | Initiates Coverage on | Market Perform | |
Feb 2015 | Goldman Sachs | Initiates Coverage on | Neutral | |
Feb 2015 | Stifel Nicolaus | Initiates Coverage on | Buy |
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