On Wednesday, Deutsche Bank maintained a Hold rating on Shake Shack (NYSE:SHAK) stock, while raising the price target to $120 from $115. The firm's analyst noted a positive sentiment towards the company as near-term same-store sales (SSS) continue to show robust performance. Investors are optimistic about the long-term potential for SSS, unit growth, and profit margins.
Shake Shack's recent marketing initiatives and promotional activities were credited for driving sales performance in the third quarter. The company reported a solid start with a 4.1% increase in July SSS and is believed to have carried this momentum into the fourth quarter. The momentum is supported by promotional events, including free Chicken Shack Sundays, the Black Truffle Menu, and a new marketing campaign in New York City.
Despite the positive sales trend, Shake Shack closed nine underperforming stores during the third quarter, which is expected to create a slight headwind to sales. The closures have not been fully accounted for in the consensus sales figures. However, the closures are estimated to have a marginal positive impact on restaurant margins, potentially improving them by approximately 30 basis points on a run-rate basis.
Deutsche Bank views Shake Shack as an attractive long-term investment opportunity, anticipating potential catalysts as CEO Rob Lynch is expected to present a comprehensive strategy and update the company's long-term guidance. Nonetheless, with Shake Shack's stock having risen 47% year-to-date, the firm suggests that a more favorable entry point and greater confidence in the company's ability to surpass financial expectations would be prudent before adopting a more constructive stance on the stock.
In other recent news, Shake Shack has been the focus of several analyst firms. Truist Securities maintained a Buy rating with a $127.00 price target, despite third-quarter sales for 2024 being projected slightly below consensus estimates at $298 million. The firm also raised the third-quarter adjusted EBITDA estimate for Shake Shack to $42.2 million, up from a previous estimate of $41.1 million.
CapitalOne increased Shake Shack's stock price target to $113, affirming an Overweight rating. TD Cowen and Goldman Sachs both maintained a Buy rating, reinforcing confidence in Shake Shack's growth strategy. Conversely, Piper Sandler downgraded the stock from Overweight to Neutral, citing potential challenges associated with menu pricing.
Shake Shack reported a substantial 16.4% increase in total revenue, reaching a record high of $316.5 million in the second quarter. This includes a 4% rise in Same-Shack sales and a significant 27% growth in adjusted EBITDA.
The company announced the closure of nine underperforming locations in California, Ohio, and Texas, aiming to optimize its portfolio and improve profitability. Despite these closures, the company's third-quarter and full-year 2024 guidance remain unchanged.
Lastly, Shake Shack has partnered with Serve Robotics for autonomous food delivery via Uber (NYSE:UBER) Eats in Los Angeles, aligning with Serve's strategy to deploy 2,000 delivery robots across the United States by 2025.
InvestingPro Insights
Shake Shack's recent performance aligns with several InvestingPro Tips and metrics. The company's stock has shown a strong return over the last year, with a remarkable 95.57% price total return. This impressive performance is reflected in the stock trading near its 52-week high, currently at 95.79% of that peak.
InvestingPro data reveals that Shake Shack's revenue growth remains robust, with a 17.96% increase in the last twelve months as of Q2 2024, reaching $1,169.45 million. This growth supports Deutsche Bank's observation of strong same-store sales performance. However, investors should note that the stock is trading at a high earnings multiple, with a P/E ratio of 162.56, indicating high expectations for future growth.
For those seeking a deeper understanding of Shake Shack's financial position, InvestingPro offers 14 additional tips, providing a comprehensive view of the company's strengths and potential risks. These insights can be particularly valuable as investors anticipate CEO Rob Lynch's upcoming strategy presentation and long-term guidance update.
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