Next week will be a big week for Shake Shack (NYSE:SHAK), as it reports its earnings for the quarter, and potential investors are looking for some big results. However, ahead of those reports, the company made some nicely upward moves thanks to a couple of new developments that, numbers aside, make the company look that much more attractive.
New Coverage Makes Shake Shack Look Extra Tasty
In the last two days, new developments on the analyst sector have stepped in that should make potential investors look that much closer at getting in on this major-city-focused fast food operation. Oppenheimer stepped in to start coverage on the company, listing it as an “outperform”, with a price target of $90 per share. That would actually be the high point, except that Piper Jaffray locked its price target in at $97 almost a year ago at this time, and doesn't appear to have altered it since.
Additionally, just three days ago, JPMorgan Chase & Co. hiked its price target from $51 to $55, which is still nearly $20 per share under Shake Shack's current share price. Morgan Stanley, only a week before JPMorgan, hiked its own prices on Shake Shack, going from $46 to $69, which is much closer to the company's current pricing. Just to round out the month, Loop Capital started covering the company back on October 1, giving it a “buy” rating and a price target of $78.
The Glacial Shift in Analyst Perspective
While the analysts appear to be pivoting, our latest research suggests that's a growing trend. As little as 30 days ago, Shake Shack overall held a “hold” rating, with three “sell” ratings, 13 “hold” and four “buy” ratings. Now, “sell” and “hold” remain static, but there are now six “buy” ratings on the company, suggesting that analysts are starting to come around to this company.
So what's driving the turnaround? There are several possible developments, including improving potential in sales and revenue. Some more concrete possibilities include, among other things, improving connection with current customers. Reports note that Shake Shack is looking to build customer engagement by offering a free order of fries with any order valued at $5 or more, though the offer expires on October 24. It was set up as a way to celebrate Vote Early Day on October 24.
Another point in Shake Shack's favor was pointed out in the note accompanying Oppenheimer's new rating coverage. The note suggested that Shake Shack's US footprint could grow to as much as three times its current levels, identifying “catalysts for a bullish recovery in same-store-sales”.
Tackling a Changing Landscape
It's clear that Shake Shack—like pretty much any other restaurant out there—has had to make a lot of changes this year just to survive. For Shake Shack, whose focus seems to be chiefly on major urban areas, that's especially true, as major urban areas have had the most restrictive environments in the face of the coronavirus and governments' response to same.
Yet it's hard to deny that Shake Shack has stepped up to the challenge in a very big way. So much so, in fact, that the company is set to join the virtual Acquia Engage event to reveal some of its own digital innovations in the market. With over 300% growth in native app and web-based sales this year, and a new 800,000 digital channel customers, Shake Shack is well-positioned to describe its impact on the digital operations front.
A Better Organization Expands
It's these latter two points combined that make Shake Shack an attractive offering. We know that Shake Shack has fundamentally shaken up its operations in recent weeks in response to the coronavirus outbreak. We know that these new digital developments are likely to stay a part of the package even after the coronavirus-related restrictions on businesses are retracted. So effectively, Shake Shack is a better organization than it once was, and that should be reflected in the upcoming numbers.
Taking an operation that functions better than it did and expanding it to new geographic locations, meanwhile, is a recipe for success. It's one thing when a shop does better; it's another thing when that better-producing shop gets more outlets. That stands to increase aggregate profit marvelously, especially if Shake Shack focuses on smaller towns and places that may never have seen a Shake Shack location before. All told, the future looks pretty bright for Shake Shack, as long as it can bring its innovations along to its new locations.
Companies in This Article:
