Analysts Lower Shake Shak Price Targets After Solid Quarter
Shake Shak (NYSE: SHAK) didn’t have a bad quarter and the analysts still see upside in the stock but their sentiment is slipping. At least five sell-side analysts have come out with commentary since the Q1 results were released and they all include a downward price target adjustment. The range of targets spans the high $60s to $80 but amounts to a consensus of $75 versus the Pricetargets.com consensus of $80. The $80 consensus is about 47% above the current price action but it has been trending lower over the last year, 3 months, and 1-month period. The upshot is the consensus rating on the stock is a Hold leaning toward Buy and it has firmed over the past year.
The insiders and institutions are holding the stock too. Insiders hold 10% of the shares and haven’t sold one in three quarters. The institutional activity has been mixed over the last year but is net-bullish. Institutions bought about 7% of the market cap with shares trading at $55 and have upped their holdings to over 80%. At the rate they’re going, there won’t be any loose shares to buy pretty soon.
Shake Shak Has A Decent Quarter
Shake Shak had a decent quarter and one in which growth held steady near 30% which is in line with long-term trends. The company posted $203.4 million in company revenue and $309.5 million in system-wide revenue (including licensees) for a gain of 31.% and 35.6% over last year. The gains were driven by a 10.3% increase in company-owned same Shak sales that were in turn driven by a 19% increase in urban Shak comps and a 4% increase in suburban Shak comps. The revenue also beat the Pricetargets.com consensus but by a slim 135 basis points so was mostly priced into the stock.
Moving down the report, Shake Shak reported a better than expected bottom line due to pricing increases and newly discovered pricing power. The company says the Shak level operating margin improved 20 basis points YOY as pricing increases more than offset increases in paper, food costs, and labor. This led to a 32.4% increase in Shak level operating profit which offset some but not all of the company’s quarterly investments. On the bottom line, the company reported a net loss but less than expected leaving the GAAP earnings of -$0.19 almost a nickel above the consensus.
The guidance is also good but flawed in that it is in line with the consensus. In that light, the $233.8 to $239.5 million in expected Q2 sales aren’t that impressive and another reason price action is falling. The catch is that average weekly sales are trending higher and at record levels so there is a possibility for outperformance relative to both guidance and the analyst's consensus.
The Technical Outlook: Shake Shak Weighed Down By Inflation
Shake Shak has been trending lower on fears of slowing growth and inflation and may continue to trend lower despite the Q1 results. Trading at over 43X its earnings it is a highly valued growth stock and one that is dependent on the market for funding. If the price action doesn’t find a bottom near $50 or higher, it could move all the way down to the pandemic low near $30. If it did, it would be a juicy buy among burger stocks.
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