Shake Shack (NYSE: SHAK) is an American fast-casual restaurant chain that started in New York City and, over the years, grew to have outlets all over globally. According to data recorded on March thirteen of this year, Shake Shack become trading at $43.56—a fall of 35.0% since the beginning of 2020. There had been significant concerns about the coronavirus throughout its stores, and this caused a sell-off. Along with the global sell-off, the susceptible fourth-quarter income and lower-than-predicted 2020 steerage brought about a fall in the company company’s stock price. During this period of lockdown, Shake Shack provided facts on how a long way the enterprise has performed on quarter1. The organization also came up with vital measures that need to be taken to help in managing the continuing corona situation. The organization also quickly closed nine enterprise-owned restaurants, while other restaurants perform on drive-in and delivery services only. During the first months of quarter1, Shake Shack’sShack’s SSSG had fallen by using 2%, which became in line with the employer’s steering. The decline have become sharper as the month continued. For March, the agency’s SSSG fell with the aid of 29%. Same-Shack-Sales were down about 2% through the first months of the First Quarter of 2020, in line with previous steerage. This decline continues with Corona cases increasing, with the effect becoming more acute as months go by. This resulted in March Same-Shack-Sales being down by 29% as compared to the same period last year.
REVENUE
Shake Shack’sShack’s management expects it is 2020 revenue to be $717million as a high estimate and 557.5 million as the average estimate. The company earlier on had plans to open new outlets in 2020 . However, the deadly coronavirus forced the company to temporarily close its stores and only operate on delivery services. By April 17, the company had provided preliminary results for the first quarter and we can say they were not looking good as compared to the expectations. Remember, the company has temporarily closed 17 of its stores, and this will likely lead to a drop in Shake Shack’sShack’s revenue. Earlier on in August 2019, the company planned to go with Grub hub as it’sits only an integrated and marketed delivery partner. However, by the end of the fourth quarter only one quarter of its restaurants were solely integrated with Grub hub. This delay in integration led to slower sales growth from delivery. . Also, management cautioned that the coronavirus outbreak could impact the company company’s same-store sales growth and new restaurant openings in Asian countries.
2020 EPS
Analysis done by 19 analysts expects Shake Shack to report an adjusted EPS of $0.52—a fall of 28% from $0.72 in 2019. The drop in the EBITDA margin, higher depreciation and amortization expenses, and increased interest expenses could lower the company company’s EPS and its profitability. However, a pump of higher revenue could offset some of the declines in the EPS. Analysts expect Shake Shack’sShack’s EBITDA to fall from 13.8% in 2019 to 12.0% in 2020. The sales deleverage caused by negative same-store sales growth and higher selling general and administrative expenses due to an increase in the company’s investment in growth initiatives could lower its EBITDA margin.
Valuation Multiple
The recent drop in Shake Shack’sShack’s stock price also brought its valuation multiples down. As of March 13, Shake Shack was trading at 83x analysts’analysts’ 2020 EPS estimate and at 71.1x analysts’analysts’ 2021 EPS estimates, which is a fall. Despite this fall, Shake Shack is still trading at a higher premium compared to its peers. Other food chain restaurants like McDonald’sMcDonald’s, Chipotle, and Jack in the Box were trading at 20.5x, 32.5x, and 9.1x, respectively on the same day. Meanwhile, analysts expect the company’s EPS to fall by 27.1% in 2020 to $0.53 and rise by 16.7% to $0.61 in the next year 2021. Shake Shack is still growing, and it has a vast potential of expanding its operations.
Analyst Recommendation
By January 9,, Street business executive, according to that B Vaccaro of Raymond James, started coverage on Shake Shack with associate underperform recommendation. He thinks that analysts’analysts’ expectations for 2020 and 2021 are to a fault optimistic, and this caused a negative result for the corporate from its high valuation levels. Vaccaro noted that Shake Shack has excellent growth prospects. However, investors might bounce back entry points within the next few quarters. By Jan twenty-one, SunTrust Robinson lowered its target worth from $85 to $82.Since Shake Shack according to its fourth-quarter earnings on Gregorian calendar month twenty-four, most analysts have all lowered its target worth to $67.38 that represents a 12-month come potential
My Recommendation
As per now, there are over 940,000 coronavirus cases have been reported in the US, with at least 53,000 deaths related to the outbreak. We should also consider the fact that the shutdown of all bars and restraints has restricted operations and deliveries. The lockdown is expected to continue until April 30 due to an increase in the number of COVID-19 cases. I think that Shake Shack will have to face the wrath of the COVID-19 outbreak. The company has many restaurants located in the most affected states, including New York and California. The impact of restaurant closures and operating with limited services will likely have a more significant negative impact on the
company. Despite the recent amends, I would recommend investors should avoid Shake Shack stock.