We expect Shake Shack Inc. SHAK to beat expectations when it reports second-quarter 2015 results on Aug 10, after the market closes. Last quarter, the company posted a positive earnings surprise of 233.33%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Shake Shack is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +33.33%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Shake Shack has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Shake Shack’s Zacks Rank #3 and +33.33% ESP makes us confident of an earnings beat on Aug 10.
What is Driving the Better-than-Expected Earnings?
Shake Shack, the New York City-based seller of burgers, crinkle-cut fries and custard shakes, began trading in Jan 2015. This is the company’s third quarterly results to be reported since the immensely successful IPO.
Shake Shack’s cult following and successful expansion into various cities around the world would boost comps in the to-be-reported quarter. The company is positioned well to cash in on the surging popularity of the U.S. fast-casual market and grow earnings on the back of lucrative store economics, strong brand and solid balance sheet.
However, challenges persist in the restaurant industry. Like other food chains, increasing food costs remain a concern for this fast casual restaurant. Food prices are expected to remain under pressure due to worldwide agricultural supply and demand imbalance and other macroeconomic factors. Moreover, a soft consumer discretionary spending environment in the U.S. could dent traffic to some extent.
Other Stocks to Consider
Other stocks in the restaurant industry that have both a positive Earnings ESP and a favorable Zacks Rank are:
Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +2.63% and a Zacks Rank #2.
Chuy's Holdings, Inc. CHUY, with an Earnings ESP of +4.76% and a Zacks Rank #3.
Dave & Buster's Entertainment, Inc. PLAY, with an Earnings ESP of +4.55% and a Zacks Rank #1.
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