A Break Under $30 Might Be Interesting Entry For Shake Shack Shares

Shake Shack Inc SHAK reported another quarterly beat in 1Q16. JPMorgan’s John Ivankoe maintained a Neutral rating for the company, with a price target of $35. The analyst commented that although comps and unit development lend up side to near- and long-term EPS, the shares appear fairly valued at present.

1Q Results And Expectations

Shake Shack reported its 1Q16 comps at 9.9 percent, significantly higher than the JPM estimate of 5 percent. Store margins came in at 28.2 percent, above expectations of 24.6 percent, and unit development was 4, beating the estimate of 3. The company witnessed robust new unit volumes during the quarter.

EPS was recorded at $0.08, higher than the JPM estimate of $0.04, and adj. EBITDA at $10.8m, versus the $8.7m expectation.

Analyst John Ivankoe raised the EPS estimate for FY16 from $0.35 to $0.42. The FY20 estimate has been raised from $1.10 to $1.12. He added, “Of note, we end 2020 at 156 domestic company units with a blended AUV of $4.3m vs the $4.8m we expect in 2016 and store margins of 26.7% vs the 29% we expect in 2016.”

Limited Share Price Upside

“The reality is the shares still don't give us the risk-adjusted upside to recommend,” Ivankoe wrote, while adding that a price below the $30 level would offer “a more interesting entry point.”