This Is A Tasty Burger: Shake Shack Surprises In Q3

Shake Shack Inc SHAK delivered a Q3 beat on the top and bottom line. The performance was impressive, since the company faced a "challenged" industry, Barclays’ Jeffrey A. Bernstein said in a report. He maintains an Equal-Weight rating on the company, with a price target of $40.

Shake Shack reported its Q3 adj. EPS at $0.15, representing 25 percent year-over-year growth and beating the expectation of $0.14. Adj. EBITDA came in at $13.0 million, ahead of Barclays’ estimate of $12.5 million. Comps of 2.9 percent came in ahead of the expectation of 1.5–2.0 percent and were “seemingly more stable than the broader industry,” analyst Bernstein noted.

Outlook Bright

Shake Shack raised its year-over-year revenue growth guidance for 2016 from 33–34 percent to 39 percent. The company also projected its 2017 revenue at $348 million–352 million, representing 32 percent year-over-year growth. This growth is expected to be driven by U.S. co-op unit opens of 21–22, while comps are expected to be at 2–3 percent.

Bernstein raised the EPS estimates for 2016 and 2017 from $0.45 to $0.46 and from $0.57 to $0.58, respectively.

“While there was upside to comp, it's settling into a low-single-digit range. But importantly, the investment thesis is all about unit growth, with 35% + y-y US co-op growth expected in 2017,” the analyst commented. He noted further that comps drive the stock multiple, and the Q3 beat coupled with “outsized unit growth” should “drive stock price outperformance today.”

Another Voice

In a separate report, Wedbush’s Nick Setyan pointed out that the company could face intensifying headwinds in 2017.

At last check, Shake Shack was up 14.46 percent at $38.07.