Wall Street banks are initiating analyst coverage on Shake Shack on Tuesday, and Stifel takes the award as the most bullish firm on the burger chain.
In a note to clients Tuesday, Stifel wrote:
We are initiating coverage of Shake Shack with a Buy rating. We are bullish on all three parts of the SHAK story within our Stifel Investment Framework, including:
- The SHAK Company Story: as a top “how company” within today’s “how economy”
- The SHAK Concept Story: as the industry’s best “fine-casual” positioning
- The SHAK Stock Story: given our Stifel DCF-based RIPE (Restaurant Industry Price/Earnings) Model target price of $US50 (vs. SHAK’s current $US42).
The most interesting part of Stifel’s call is characterising Shake Shack as a top “how company” in a “how economy.” Here’s what the firm has to say about the characterization:
Within today’s socially-networked world, ‘how’ a company operates is more important to its long-term success than ‘what’ it produces. We believe that SHAK’s most valuable asset is its “Enlightened Hospitality” approach to the restaurant business … By out-behaving its competition, SHAK ultimately ends up caring for its investors by delivering a lifestyle brand with privileged access to customers, to employees, to real-estate sites, and to suppliers around the world. From an investor’s perspective, SHAK’s virtuous cycle of success helps significantly de-risk an inherently high risk proposition — which is investing in a small restaurant concept with global growth ambitions.
Stifel adds that in the last 10 years, Shake Shack CEO Randy Garutti has “walked the walk” on implementing the “Enlightened Hospitality” approach, with this operating philosophy giving the company the benefits of a virtuous cycle of success that is a “sustainable competitive advantage.”
On Tuesday, analysts at Goldman Sachs initiated coverage on Shake Shack shares with a “Neutral” rating, with that firm seeing the stock as expensive, though it thinks Shake Shack is a great company.
Stifel agrees that Shake Shack is a great company, and doesn’t see the stock’s current valuation as any reason not to be bullish on burgers.