While retaining a Buy rating, analyst John Zolidis slashed his target price from $45 to $40, implying a more than 20 percent upside potential. The company is expected to announce its third-quarter results between November 3 and 7.
The brokerage pointed out that Shake Shack faces the tough comparison on a year-over-year basis, citing the 17.1 percent growth achieved in 2015. Although the company has not offered any forecast, consensus estimates 1.8 percent comps growth. Both the firm and Street analysts expect EPS of $0.14 compared to $0.12 delivered in the year-ago quarter.
Zolidis sees the restaurant locations growing from 60 to 450 under ideal economic situations. The analyst expects average annual ROIC of ~36 percent for Shake Shack.
"We believe SHAK's exceptional returns are a function of strong AUVs in marquee locations reflecting the good value product offering, attractive store environment and strong brand. We see 54 percent/29 percent upside/ downside in our best/worst case scenarios," the analyst said in a research note to clients.
The brokerage liked the shares because of very high growth rate, extraordinary economics of unit, SRS growth and the strength to boost its base on a long-term basis.
At last check, Shake Shack was down 1.28 percent at $32.41.
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