Shake Shack, Inc.

SHAK Details

Shake Shack, Inc. (NYSE: SHAK) is a modern-day "roadside" burger stand that serves burgers, chicken sandwiches, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, and wine on a traditional American menu. The firm established five new domestic company-operated Shacks and eight new licensed Shacks in Q3FY21 (ended September 29, 2021).

Latest News:

• Collaboration with FreedomPay: On November 03, 2021, SHAK announced a strategic agreement with FreedomPay, a commerce platform that transforms existing payment systems, enabling Next Level Commerce solutions to be implemented in over 200 sites across the United States. As part of this collab, the company has already begun rolling out FreedomPay's Touchless Commerce solution.

9MFY21 Results:

• Expansion in Revenues: Due to people returning to offices, events, commuting, and tourism-based destinations, the company's total revenue increased 46.88% YoY during 9MFY21 (ended September 29, 2021) to USD 536.64 million from USD 365.36 million during 9MFY20 (ended September 23, 2020).
• Significant Improvement in EBITDA: SHAK reported an increase in EBITDA to USD 34.18 million during 9MFY21 vs. USD 4.91 million during 9MFY20.
• Surge in Net Income: The net income during 9MFY21 was USD 0.24 million vs. a loss of USD 25.22 million reported during 9MFY20.
• Boost in Weekly Sales: In Q3FY21, average weekly sales reached USD 72.0 thousand, the highest level since the COVID-19 pandemic began, and up from USD 64.0 thousand in Q1FY21.

Key Risks:

• Supplier Concentration: SHAK's supplies, including chicken breast, potato buns, Shroom Burgers, 44% of its ground beef patties, and 78% of its ShackSauce, came from one supplier each in FY20. As a result, any breach of contract by these critical vendors might harm the company's operations and finances.
• Geographic Concentration: As of FY20, SHAK's financial success is primarily due to its shacks in the Northeast and the New York City metropolitan area, which account for nearly 40% of its total domestic company-operated shacks. As a result, any adverse economic conditions in any of these locations might negatively impact the company's overall performance.

Outlook:

• Q4FY21 Estimates: SHAK indicated in its Q3FY21 press release that it expects total revenues of USD 193.5 – 200 million in Q4FY21, with shack sales of USD 187 – 193 million and license income of USD 6.5 – 7 million. Same-Shack sales growth is estimated to be in the mid to high teens (compared to Q4FY20), with a shack level operating profit margin of 14 – 16%.
• FY21 Estimates: In FY21, the company plans to set up 35 – 38 domestic operating shacks and 25 licensed ones. It also forecasts overall general & administrative (G&A) spending to be in the region of USD 86 – 88 million, with pre-opening costs of USD 13 – 14 million.

Valuation Methodology: Price/Sales Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SHAK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SHAK's share price has surged 43.13% in the past week and is currently trading below the mid-point of the 52-week range of USD 68.23 to USD 138.38. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 75.47, indicating an overbought zone. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 90.28.

Considering the significant uptick in the stock price in a short span and other technical indicators, we believe the decent business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 99.00, up 26.79% as of November 05, 2021, 10:44 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.