On Monday, BofA Securities updated its valuation for Shake Shack (NYSE:SHAK), raising the stock price target to $113 from $99, while keeping a Neutral rating on the shares. The revision reflects a change in the terminal enterprise value to EBITDA (EV/EBITDA) multiple, now at 15.5x compared to the previous 13.8x, in line with the broader expansion of market multiples.
The firm's analysis suggests that Shake Shack is on track to reach approximately $7.7 billion in sales by 2032. With an expected restaurant-level margin (RLM) improvement from 18% to 22% and general and administrative expenses (G&A) holding at 9%, Shake Shack is projected to achieve around $740 million in EBITDA. The new terminal multiple applied and discounted back leads to the updated price objective of $113.
Despite the increase in the price target, the BofA Securities analyst reiterated a Neutral stance on Shake Shack's stock. The firm anticipates that certain long-term challenges, like lower average unit volumes (AUVs) in newer store cohorts, will continue to affect the company's performance.
The adjustment in the price target comes as financial analysts periodically reassess the potential of companies based on their financial health and market conditions. The new valuation for Shake Shack takes into account the company's growth prospects and operational forecasts, balanced against the ongoing industry challenges it faces.
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