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Shake Shack Stock Rose on Increased Target Price by SunTrust

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Dec. 4 2020, Updated 10:52 a.m. ET

Stock performance

The increased target price for Shake Shack (SHAK) from $50.00 to $60.00 by SunTrust Robinson Humphrey appears to have increased investor confidence and the company’s stock price. On January 3, 2017, Shake Shack was trading at $16.70, which represents an increase of 7.8% from its previous day’s closing price.

In 3Q17, Shake Shack posted adjusted EPS (earnings per share) of $0.17 on revenues of $94.6 million. Analysts expect the company to post EPS of $0.15 on revenues of $94.5 million.

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After posting its 3Q17 earnings, the company’s management raised its 2017 SSSG,[1. same-store sales growth] revenues, and EPS guidance. The better-than-expected 3Q17 earnings, its increased 2017 guidance, and the stock upgrade by analysts contributed to an increase in Shake Shack’s stock price. The company’s stock price has risen 26.7% since the announcement of its 3Q17 earnings.

2017 stock performance

In 2017, Shake Shack’s stock price rose 20.7%. During the same period, its peers Chipotle Mexican Grill (CMG), McDonald’s (MCD), and Wendy’s (WEN) returned -23.4%, 41.4%, and 21.4%, respectively.

The S&P 500 Index (SPX) and the iShares US Consumer Services ETF (IYC) have returned 21.2% and 20.8%, respectively. IYC invests 10.4% of its holdings in restaurant and travel companies.

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Valuation multiple

We’ll use the forward PE (price-to-earnings) multiple due to its high visibility in Shake Shack’s earnings. On January 3, 2018, Shake Shack was trading at a forward PE multiple of 85.9x. On the same day, its peers McDonald’s, Chipotle, and Wendy’s were trading at 24.6x, 33.0x, and 30.5x, respectively.

Analysts’ expectations

For the next four quarters, analysts expect Shake Shack to post revenues of ~$427.8 million, which represents 27.4% growth from $336.0 million in the corresponding four quarters of 2017. However, during the same period, its earnings per share are expected to fall 3.6% from $0.56 to $0.54.

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