Analysts Roll Out Lukewarm Coverage On 'Better Burger' Chain Shake Shack

NEW YORK (TheStreet) -- A number of research firms initiated coverage of burger chain Shake Shack earlier today with cautious outlooks, warning that the stock's valuation is high while the company faces a great deal of competition. WHAT'S NEW: Shake Shack's valuation is "at levels we've never seen," wrote Barclays analyst Jeffrey Bernstein. The gap between the company's valuation and the valuation of its high-growth retail and restaurant peers is likely to narrow over time, Bernstein predicted. Shake Shack also has "outsized competition," the analyst warned. Moreover, the chain is much better known in New York City than outside of it, so its financial performance will likely be pressured as it builds more restaurants outside of the Big Apple, Bernstein indicated. The analyst initiated coverage of the stock with a $40 price target and Equal Weight rating. JPMorgan analyst John Ivankoe was also cautious on Shake Shack's valuation, writing that the company has "a major growth opportunity," but warning that the growth is already reflected in the stock's valuation. Adding that the stock "has overshot reasonably expected risk-adjusted returns," the analyst initiated coverage of the stock with a $34 price target and Neutral rating. Meanwhile, Jefferies analyst Andy Barish warned that the company faces significant execution risk, since it plans to eventually grow to at least 450 stores in the U.S from its current level of just 31. At current levels, the stock is already baking in many positive outcomes for Shake Shack, including more than 450 U.S. stores, outsized returns at restaurants outside of Manhattan, and new international partnerships, the analyst believes. Shake Shack has "little room for error," added the analyst ,who started coverage of the stock with a $40 price target and Hold rating. ANOTHER TO WATCH: Habit Restaurants is another "better burger" chain that came public in November of last year. PRICE ACTION: In early afternoon trading, Shake Shack rose 3% to $42.85. The stock opened its first day of trading, January 30, at $47 per share after its initial public offering priced at $21 per share. Reporting by Larry Ramer.

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