Restaurants of all stripes have had a particularly tough run of things lately, and Shake Shack (NYSE:SHAK) is no exception. In fact, it may have had things particularly tough as it tended to focus on large urban areas, which have featured exceptionally difficult conditions in the face of the COVID-19 outbreak. While some of these restrictions are finally relaxing, more so in some places than others, Shake Shack released its third-quarter figures, and the news is not all bad.
Earnings Mixed Like a Classic Vanilla Shake
The bad news for Shake Shack was that, indeed, it posted a third-quarter loss. The company lost $5.6 million this quarter, which compares terribly against this time last year in which it posted a profit. The $5.6 million lost came to about $0.15 on an earnings per share (EPS) basis, and with losses adjusted for non-recurring costs, came out to around $0.11.
The good news, however, is that the Wall Street consensus, as expressed by Zacks, was much lower than what Shake Shack actually posted. The consensus was expecting a posted loss of $0.21 per share. Similar bad news / good news situations continued throughout the earnings report, cropping up especially clearly in the revenue figures. The company brought in $130.4 million in revenue, against an expected income of $126 million. However, it doesn't compare well to the figures posted this time last year, in which the company brought in $157.76 million. Same ballpark, certainly, but a hair under $28 million in revenue difference certainly has to hurt to some degree.
Just to put the cherry on top of this mixed-bag shake of a business, the company offered no guidance for upcoming quarters, but did note that it expected a full recovery. When such a recovery would happen, however, was unclear and is likely related to several factors that aren't in the company's sphere of influence.
The Analysts Taste the Shake
Just about any opinion on Shake Shack has a certain validity at this stage, as there seems to be about an equal quantity of positive news and negative news all tumbling around in the same cup. However, there's a sign that the “buy” side is gaining ground, according to our latest research.
While analysts right now have a consensus of “hold”, the dynamics going into that hold have changed substantially, even over the last 30 days. Back then, the company had three “sell” ratings, 13 “hold” ratings, and four “buy” ratings. Now, it's still three “sell”, but 14 “hold” and six “buy” ratings.
Better yet, the price target on the company has been trending upward for the last three months. Back then, the company had an average price target of $57. Now, it's $62.60, and given that the share price was $67.27 as of this writing, there may be further adjustments to come. Indeed, about a week ago, Oppenheimer started coverage of the company and called it an “outperform” with a price target of $90 per share. That's a huge leap forward for Shake Shack, and it's not the only one. Both Credit Suisse and Cowen raised their price targets just today, though both were still under the level at which the stock is currently trading. This month has been quite positive for Shake Shack, with four raised price targets and two companies starting coverage at higher-than-average price targets.
Positive Signs, But Keep Close Watch
So far, things have done surprisingly well for Shake Shack. The company has made a lot of changes, including changes specifically geared toward operating under pandemic restrictions, like increasing its drive-thru options and improving its mobile app. It's a safe bet that the company's expansion efforts will keep these capabilities squarely in mind. Shake Shack has been looking to expand for some time now, and that's certainly good news, especially given current conditions.
For Shake Shack to fully recover, we'd need to see a lot less restriction on where people can go to eat food. With lockdown measures still in place in many areas, that's going to fundamentally limit just how much business Shake Shack can actually do. The convenience of being able to eat food in the same place in which it's cooked is hard to understate, and likely impacts buying decisions accordingly. Right now, the company is working at less than full efficiency, like an engine with one faulty cylinder. In the short term, it's a surmountable problem. In the long term, it can be disastrous. Shake Shack's future is now largely in the hands of a society split by very different approaches to a disease, and that's going to make buying in a bit of a risk.
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