This Analyst Sees Opportunities For Shake Shack's Significant Store Margin Growth, Bumps Up Price Target

Raymond James analyst Brian M. Vaccaro reiterated a Strong Buy rating on the shares of Shake Shack Inc SHAK and raised the price target from $78.00 to $90.00.

Shake Shack’s $3.8 million average unit volume reflects sales per square foot over $1,100, one of the highest across the analyst’s coverage universe.

The analyst says, such volume should theoretically drive industry leading store margins.

A comparative cost analysis of Shake Shack’s cost structure versus a select group of public and private peers bolsters the analyst’s confidence that there could be hundreds of basis points of store margin opportunity over the next few years.

SHAK’s labor cost per week of $21,700 is well above most peers and its other Operating expenses per week ($9,800) and Occupancy per week ($5,700) are also well above most peers, notes the analyst.

The analyst is optimistic about the company’s review of its business that could uncover opportunities for improvement. 

Some of the areas include, labor scheduling and deployment, refining prep processes on certain labor-intensive menu items, redesigning and standardizing kitchens, and developing a smaller, more efficient new unit prototype.

The analyst sees an opportunity

to refine the new unit prototype and reduce its avg. build cost should strengthen new unit economics and increase confidence in the company’s long-term unit growth opportunity, says the analyst.

Price Action: SHAK shares are trading higher by 1.91% at $69.77 on the last check Thursday.

Photo via Company