Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Jefferies downgraded both Shake Shack (NYSE:SHAK) and Starbucks (NASDAQ:SBUX) to Underperform in separate notes Thursday, citing stretched valuations, overly optimistic investor expectations, and a lack of near-term fundamental improvement.
On Shake Shack, Jefferies argued that the stock’s rally to all-time highs has “more than reflected” optimism around near-term same-store sales (SSS) recovery and menu innovation.
“Although we acknowledge tangible drivers on the horizon... we think the sustainability of recent trends and acceleration in SSS thru 2H is well priced in,” analysts wrote.
Jefferies noted new product offerings such as the Dubai Chocolate Shake and expanded summer barbecue items, but said further upside is “largely predicated on multiple expansion which could prove limited.”
The firm forecasts Q2 SSS of 1%, below consensus estimates of 1.5%, and sees risk skewed to the downside with a $120 price target.
Meanwhile, Jefferies said Starbucks has yet to show “clear signs of better fundamentals” despite the stock rising 15.5% since its last earnings report.
The firm lowered its rating to Underperform and kept a $76 price target, warning that management’s operational turnaround could take longer than expected.
Jefferies adds that alternative data signals a potential shortfall in U.S. comps, with foot traffic and card spend data pointing to negative trends.
“We model US SSS of -3% in F3Q, followed by an improvement to pos. 1% in F4Q vs Cons 2%,” the analysts wrote.
Jefferies also questioned the valuation of Starbucks’ China business amid stake sale speculation, calling a $10 billion figure “unlikely” and suggesting a more realistic range of $2 billion to $2.5 billion.
Both stocks, Jefferies concluded, are pricing in more optimism than current fundamentals justify.