On Tuesday, Truist Securities maintained a positive stance on Shake Shack (NYSE:), reiterating a Buy rating and a $127.00 price target. The firm’s analysis of card data suggests that Shake Shack’s sales for the third quarter of 2024 are expected to be slightly below consensus estimates, at $298 million, which is 2.2% less than the market’s expectations.
Nevertheless, Truist Securities forecasts that Shake Shack’s same-store sales (SSS) will align with the consensus estimate of a 3.5% increase, using the reported July SSS growth of 4.1% as a baseline.
The card data indicated a slowdown of approximately 110 basis points during August and September, but the introduction of the ‘Black Truffle Burger’ on September 13 seemed to reinvigorate sales growth. Despite a period of deceleration, this product launch has been noted as a significant factor in the recent performance.
Truist Securities has also updated its model to account for the recently announced closure of nine Shake Shack stores, which is expected to have a neutral impact on EBITDA. Additionally, the firm has tracked the opening of seven new locations. As a result of these adjustments, the third-quarter adjusted EBITDA estimate for Shake Shack has been raised to $42.2 million, up from a previous estimate of $41.1 million. This updated figure remains slightly below the consensus estimate of $43.3 million.
The Truist Securities analyst has emphasized that the updated price target of $127 remains in place, despite the minor adjustments to sales and EBITDA estimates. This target reflects the firm’s confidence in Shake Shack’s market performance and growth potential.
In other recent news, Shake Shack has experienced significant developments. The company 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.
Shake Shack also 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.
In the realm of analyst ratings, CapitalOne increased Shake Shack’s stock price target to $113, affirming an Overweight rating. TD Cowen and Goldman Sachs (NYSE:) both maintained a Buy rating on Shake Shack, reinforcing confidence in the company’s growth strategy. However, Piper Sandler downgraded the stock from Overweight to Neutral, citing potential challenges associated with menu pricing.
In terms of innovation, Shake Shack has partnered with Serve Robotics for autonomous food delivery via Uber (NYSE:) Eats in Los Angeles, aligning with Serve’s strategy to deploy 2,000 delivery robots across the United States by 2025.
InvestingPro Insights
To complement Truist Securities’ analysis, InvestingPro data offers additional insights into Shake Shack’s financial performance. The company’s revenue for the last twelve months as of Q2 2024 stood at $1.17 billion, with a robust revenue growth of 17.96% over the same period. This aligns with the positive outlook on Shake Shack’s sales trajectory mentioned in the article.
InvestingPro Tips highlight that Shake Shack’s stock price movements are quite volatile, which investors should consider in light of the recent product launch and store closures discussed. Additionally, the company operates with a moderate level of debt, potentially providing flexibility for future growth initiatives.
It’s worth noting that while Shake Shack is trading at a high earnings multiple, with a P/E ratio of 159.18, it’s also trading at a low P/E ratio relative to near-term earnings growth. This suggests that despite the high valuation, there may be potential for future earnings expansion.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Shake Shack, providing a deeper understanding of the company’s financial health and market position.
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