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Why JPMorgan Chase Downgraded Shake Shack

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JPMorgan Chase’s recommendation

On May 7, JPMorgan Chase downgraded Shake Shack (SHAK) from “neutral” to “underweight.” However, it raised its 12-month target price from $40 to $49. The new target price represents a fall of 12.8% from its current stock price. JPMorgan Chase managing director John Ivankoe has stated that the recent rise in Shake Shack’s stock price and valuation has been overstretched.

Other analysts’ ratings

Of the 11 analysts following Shake Shack, 36.4% have recommended “buy,” 36.4% have recommended “hold,” and 27.3% have recommended“sell.” On average, analysts expect Shake Shack stock to reach $49.80 in the next 12 months, which represents a fall of 12.8% from its current stock price. Shake Shack’s trading below analysts’ 12-month target price does not mean an automatic “sell.” Investors are advised to analyze analysts’ estimates before making investment decisions.

Stock performance

JPMorgan Chase’s downgrade did not impact Shake Shack’s stock price. The company’s stock closed May 7 at $57.10, which represents a rise of 2.0% from the previous day. Year-to-date, Shake Shack stock has risen 32.2%, driven by strong 1Q18 earnings. For more, read Shake Shack Raised Its Outlook after Strong 1Q18 Earnings.

In comparison, peers Chipotle Mexican Grill (CMG), Jack in the Box (JACK), and Wendy’s (WEN) have returned 45.2%, -10.6%, and 2.7%, since the beginning of 2018. The broader S&P 500 (SPX) has been flat, while the Consumer Discretionary Select Sector SPDR ETF (XLY) has returned 5.8%.

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