On Thursday, Deutsche Bank maintained a Hold rating on Shake Shack (NYSE:SHAK) stock while raising the price target to $133 from the previous $120, following a robust third-quarter performance. The fast-casual restaurant chain reported a 4.4% increase in same-store sales (SSS) for the third quarter, surpassing expectations and demonstrating the effectiveness of its marketing and operational improvements.
The positive trend continued into the fourth quarter, with October SSS rising to 4.5%. This performance suggests that the company's fourth-quarter SSS guidance of 3-4% may be conservative. Additionally, Shake Shack achieved a restaurant margin of 21%, which not only exceeded forecasts but also indicated that the company might surpass its 2019 margins for the first time in the fourth quarter.
Deutsche Bank's report highlighted that these results add credibility to the potential for margin improvement, which is supported by sales leverage and other operational initiatives. The bank also noted the anticipation for CEO Rob Lynch to present a comprehensive strategy and update long-term guidance, which could serve as potential catalysts for the company.
Despite the positive outlook, Deutsche Bank advised caution due to the stock's significant year-to-date increase, which was up 65% at the time of the report. The firm suggested looking for a more opportune entry point and greater conviction in the upside potential before adopting a more constructive stance on the stock.
In other recent news, Shake Shack has reported strong financial results for the third quarter of 2024, marking its 15th consecutive quarter of Same-Shack sales growth. The company's total revenue surged by 14.7% year-over-year to $316.9 million, with system-wide sales climbing 12.8% to $495.1 million. Adjusted EBITDA saw a significant rise of 28%, reaching $45.8 million.
Additionally, Truist Securities has revised its price estimate for Shake Shack upward to $144, up from $127, reiterating a Buy rating. This upgrade is based on the company's recent financial results and its guidance for future growth and margin improvements. Shake Shack's strategic expansion included the opening of 17 new locations, contributing to an overall footprint of over 550 Shacks.
The company also announced plans to open approximately 75 Shacks in 2024, with an acceleration to 80-85 in 2025. Looking ahead, the company projects total revenue for Q4 2024 to be between $322.6 million and $327 million, with full-year 2024 revenue expected to reach approximately $1.25 billion. Adjusted EBITDA for the full year is projected to grow 27% to 29%, reaching between $168 million and $170 million.
InvestingPro Insights
Shake Shack's recent performance aligns with several InvestingPro metrics and tips. The company's revenue growth of 17.96% over the last twelve months and 16.44% in Q2 2024 supports Deutsche Bank's observations about robust sales performance. This growth is reflected in the stock's impressive 118.54% price return over the past year.
InvestingPro Tips highlight that Shake Shack is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.28. This suggests potential undervaluation despite the recent stock price surge. Additionally, the tip indicating that 8 analysts have revised their earnings upwards for the upcoming period aligns with Deutsche Bank's positive outlook on the company's future performance.
It's worth noting that InvestingPro offers 17 additional tips for Shake Shack, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable given the stock's recent volatility and high valuation multiples.
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