SunTrust Downgrades Shake Shack Amid Same-Store Sales Concerns

Shake Shack Inc SHAK remains one of the most compelling growth stories and brands within the entire restaurant sector but 2020 could prove to be a difficult year, according to SunTrust Robinson.

The Shake Shack Analyst

Jake Bartlett downgraded Shake Shack from Buy to Hold with a price target lowered from $82 to $79.

The Shake Shack Thesis

Shake Shack's decision to offer delivery exclusively through GrubHub Inc GRUB could result in a "deeper and longer" impact on sales than assumed, Bartlett wrote in a note. Management never quantified the benefit it saw from delivery but fourth quarter same-store sales guidance of down 3% implies it is "meaningful." In fact, same-store sales concerns could extend throughout 2020 as first-hand checks point to "relatively low" consumer ratings on the GrubHub platform versus its brand positioning.

Meanwhile, Shake Shack plans to open 90% of its company-owned stores in existing markets in 2020 and the research firm's checks suggest 22 out of 24 store openings are located within 20 miles of a non-comp base store. The math behind this trend implies a 220 basis point same-store sales headwind in 2020 due to sales cannibalization.

Finally, Shake Shack's stock has risen nearly 30% since the start of 2020 but same-store sales are modeled to remain negative through the second quarter. As such the risk to reward profile is "more balanced" at current levels.

SHAK Price Action

Shares of Shake Shack closed down 2.40% Friday at $74.80.

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Baird's Positive Long-Term View On Shake Shack Tempered By Near-Term Concerns

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