Benzinga | Aug 20, 2020 12:16PM EDT

Shake Shack Can Grow In A Post-COVID World, Wedbush Says In Upgrade

Shake Shack Inc (NYSE:SHAK) could exit the COVID-19 pandemic with an even better growth story than it offered investors prior to the pandemic, according to Wedbush.

The Shake Shack Analyst: Nick Setyan upgraded Shake Shack's stock from Neutral to Outperform with a price target lifted from $53 to $77.

The Shake Shack Thesis: Shake Shack boasted one of the more attractive growth stories in the restaurant sector prior to the pandemic but now there is reason to believe management's long-term domestic store count guidance of 450 units is "meaningfully conservative," Setyan wrote in the note. In fact, Wedbush's city-by-city analysis suggests it makes economic sense to operate 1,300 units.

But even if Shake Shack ultimately operates half of this figure, the analyst said it represents an impressive growth profile through at least 2031.

The pandemic forced management to invest in new initiatives that will position the company for long-term growth. These include delivery through proprietary channels by 2021, digital payment options, and curbside pickup expansion from 50 stores by the end of the third quarter.

The research firm's revised $77 price target is based on a discounted cash flow model through 2027 that assumes 450 units, an average unit volume of $3 million, and a multiple of 15 times EV/EBITDA. Under a bullish scenario, the stock could be worth $103.10 per share if average unit volume comes in at $4 million

SHAK Price Action: Shares of Shake Shack were trading higher by 1.7% at $54.82.

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Shake Shack burger and fries. Photo by m01229 via Wikimedia.