On Thursday, TD (TSX:TD) Cowen revised its stance on Shake Shack (NYSE:SHAK), elevating the burger chain's stock from Market Perform to Outperform and boosting the price target to $125 from the previous $91.
This optimistic adjustment is rooted in the belief that Shake Shack stands as the most likely candidate within the firm's coverage to surpass the adjusted EBITDA estimates for the years 2024 to 2026 as provided by Consensus Metrix.
TD Cowen's analysis suggests that Shake Shack is embracing its brand's scale, which is expected to contribute to higher than anticipated margins. The firm estimates that Shake Shack will achieve restaurant margins of 21.0%, 21.6%, and 22.0% for the years 2024 to 2026, respectively. These projections are notably higher than the consensus margins of 20.6%, 20.9%, and 21.2% for the same periods.
In addition to margin improvements, TD Cowen anticipates below-consensus adjusted general and administrative expenses (excluding stock-based compensation), contrary to the consensus forecasts which project minimal leverage in 2025 and 2026. The firm foresees that these factors, combined with a new CEO at the helm, will lead to a narrative shift and provide opportunities to enhance customer traffic.
The firm's bullish outlook is further bolstered by a "bull case" scenario where Shake Shack could potentially achieve a 23.0% restaurant margin by the year 2026. The upward revision of the price target to $125 signifies TD Cowen's confidence in Shake Shack's growth trajectory, positioning the company as their top small to mid-cap pick and second overall.
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