Here is a summary of how some of the Street's top analysts reacted to the print.
- Barclays' Jeffrey Bernstein maintains an Equal-Weight rating on Shake Shack with an unchanged $56 price target.
- Wedbush's Nick Setyan maintains at Neutral, price target lowered from $62 to $56.
- William Blair's Sharon Zackfia maintains at Outperform.
- Goldman Sachs' Karen Holthouse maintains at Sell, price target lifted from $35 to $37.
Shake Sack traded around $47 per share at time of publication, down 14 percent.
Barclays: Comps Less Relevant
Bulls will argue comps are "less relevant" given the company's early stages in its growth, Bernstein said in a note. This may hold some validity as the restaurant chain is active in opening new units to gain market share and management is doing the right thing for long-term growth.
Bernstein said restaurant stocks typically respond poorly to any comp miss regardless of the longer-term picture. Nevertheless, shares could find some support as it's valued at 3.2 times 2019 estimated EV/Sales, which is 20 percent above its high growth peers and justified given a significantly better revenue growth profile.
Wedbush: Reasonable Outlook
Shake Shack's management now expects same-store sales growth to come in at the low end of its prior flat to 1 percent growth on new store openings of 33 to 34, Setyan said. This outlook looks "realistic" and given expectations for some degree of cannibalization, a flat comp in the near-term would be considered a favorable measure.
Over the longer term a discounted cash flow valuation model is the preferred valuation method as it minimizes the impact of near-term assumptions.
William Blair: Focus On Revenue Growth
Shake Shack's earnings showed a miss in comps although it should be overlooked in favor of the revenue growth seen in the quarter, Zackfia said. The company's overall profit remains "extraordinary" across every region as evident by management revising its revenue guidance for 2018 higher despite a narrow comp guidance.
Shares are trading at roughly 26 times estimated 2019 EBITDA, which Zackfia said is attractive given expectations for the company to show the "strongest and longest" era of growth among emerging restaurant brands.
Goldman Sachs: Bulls Might Be Wrong
Shake Shack's new menu initiatives could result in new snacking occasion sales but new items like chicken bites and veggie burgers aren't seen as "needle-movers" to reverse recent decelerating traffic trends, Holthouse said. The addition of new menu items actually could add "complexity" to both the consumer and on the restaurant operation side.
Meanwhile, Holthouse said delivery initiatives remains a "test-and-see" as the economic viability of operating with a third-party delivery partner is not yet known. The full inclusion of delivery options at stores could create through-put issues as it adds a new layer of complexity to both front of house and back of house operations.
Photo by Dustin Blitchok.
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|Oct 2018||Stifel Nicolaus||Initiates Coverage On||Hold|
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