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Shake Shack Stock Up; Truist Notes Digital Sales, Better Delivery

Truist upgraded Shake Shack to buy from hold, citing a rise in digital sales and improved delivery service.

Shares of Shake Shack  (SHAK) - Get Shake Shack, Inc. Class A Report rose Monday after analysts at Truist upgraded the fast food chain to buy from hold, citing a rise in digital sales and improved delivery service.

Truist lowered its price target on the stock to $90 a share from $101 due to the impact of the Covid delta variant and operating-cost inflation.

Shares of the New York restaurant chain on Monday closed 7.6% higher at $74.41.

"We believe Shake Shack's sales opportunity has increased throughout the Covid crisis, due to the acceleration of digital sales and improved delivery performance," Truist analyst Jake Bartlett wrote in a note to investors.

"[Near-term] pressures give investors an opportunity to buy an improved operating model exiting the pandemic, driven by SHAK's accelerated digital transformation," Bartlett added.

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Shake Shack's digital average weekly sales increased to $34,000 in the second quarter this year and $30,000 in July from $13,000 in March 2020. 

Since the pandemic began, the burger-and-shakes chain has added 2.4 million first-time digital users. That total is up 17% from first-quarter 2021.

"We view SHAK as one of the fastest growing and best positioned concepts in the restaurant space, which hits the consumer sweet spot of quality food and service for a reasonable price," Truist said.

"It has one of the most recognizable brands in the industry and has impressive new unit economics, which should continue to drive development globally and total revenue growth," the note said.

"While Shake Shack's sales recovery will likely be slower post-Covid, the acceleration in digital sales unclogs its key bottleneck to throughput (order, pay and pickup), potentially enabling higher sales volumes than expected pre-Covid," Bartlett said.