On Friday, UBS updated its outlook on Shake Shack (NYSE:SHAK), increasing the company's price target from $110.00 to $115.00 while maintaining a Neutral rating. The adjustment comes in the wake of Shake Shack's first-quarter results, which showed an upswing in sales trends after a challenging start to the quarter. The company's profitability also appeared to improve, indicating progress toward significant long-term margin expansion opportunities.
Shake Shack's sales have continued to improve into the second quarter, with same-store sales (sss) in April hitting 4.9%, including roughly flat traffic. The updated guidance from the company includes a forecast for total 2024 revenue to range between $1.22 billion and $1.25 billion, a slight increase from the previously projected $1.21 billion to $1.25 billion.
Additionally, the forecast for restaurant-level margins (RLM) has been raised to 20.2-21.0%, up from 20.0-21.0%. However, the adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) expectation remains unchanged at $160-170 million, despite higher General & Administrative costs.
UBS highlighted that the near-term focus for investors would likely be on the potential for Shake Shack to surpass its modest second-quarter same-store sales growth guidance and to meet its 2024 margin targets. In the long term, the firm points to the company's margin expansion opportunities and ongoing unit development as key factors supporting an attractive growth outlook for Shake Shack.
However, UBS signaled caution, noting that while these factors are promising, they seek greater clarity on the long-term potential for margin and EBITDA growth before adopting a more constructive stance on the stock. This is particularly relevant as Shake Shack's shares have already seen a significant increase, rising over 40% year-to-date, and are currently trading at around 24 times the projected 2025 EBITDA.
InvestingPro Insights
Shake Shack's (NYSE:SHAK) recent performance has caught the eye of investors and analysts alike, with UBS raising the company's price target. In light of this development, a closer look at some key financial metrics from InvestingPro provides a richer context for evaluating the company's valuation and prospects. Shake Shack has a market capitalization of approximately $4.45 billion, reflecting the market's optimism about its growth trajectory. Despite a high earnings multiple, with a P/E ratio of 186.22 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 142.47, the company's stock price movements have been notably volatile. This could indicate a higher risk-reward scenario for potential investors.
The company has been trading at a high revenue valuation multiple, with revenue growth showing a healthy 18.35% increase over the last twelve months as of Q1 2024. This aligns with UBS's observation of Shake Shack's improving sales trends. Additionally, the strong return over the last three months, at 35.41%, and over the last year, at 98.67%, underscores the stock's impressive performance in the recent past. Investors should note that Shake Shack does not pay a dividend, which may influence the investment strategy for those seeking regular income.
For those looking to delve deeper into Shake Shack's financial health, InvestingPro offers additional insights. There are 11 more InvestingPro Tips available, which can provide a comprehensive analysis for a more informed investment decision. Interested readers can access these tips and take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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