Shake Shack, Inc.

SHAK Details

Shake Shack, Inc. (NYSE: SHAK) is a modern-day "roadside" burger stand that offers a typical American menu of excellent burgers, chicken sandwiches, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, and wine. As of June 30, 2021, 339 Shacks were operating worldwide, including 200 domestic company-operated Shacks, 23 domestic licensed Shacks, and 116 international licensed Shacks. As of October 20, 2021, the company's market capitalization stood at USD 3.11 billion.

Latest News:

• China Expansion: On June 22, 2021, SHAK and its licensee, Maxim's Caterers Limited, one of Asia's leading food and beverage companies, announced an expanded partnership to open ten more shacks in additional Chinese regions by 2031, including Sichuan, Chongqing, Yunnan, Hubei, Shaanxi, Anhui, Henan, and Guizhou.
• Change in Management: Katherine Fogertey was named Chief Financial Officer (CFO) of the business on June 9, 2021, with an effective date of June 14, 2021. Katie will be a member of SHAK's senior management team and oversee the company's financial operations.

H1FY21 Results:

• Significant improvement in EBITDA: Its EBITDA improved to USD 21.62 million during H1FY21 vs. a negative EBITDA of USD 0.70 million during H1FY20, owing to an increase in net income.
• Increase in Net Income: The net income for H1FY21 was USD 2.64 million vs. a loss of USD 19.11 million reported in H1FY20.
• Boost in Weekly Sales: In Q2FY21, average weekly sales reached USD 72 thousand, the highest level since the Covid-19 pandemic began, and up from USD 64 thousand in Q1FY21.

Key Risks

• Supplier Concentration: In FY20, SHAK acquired all of its components from a single supplier, including chicken breast, potato buns, Shroom Burgers, 44% of its ground beef patties, and 78% of our ShackSauce. As a result, any violation of the contract by this vendor might harm the company's operations and finances.
• Geographic Concentration: SHAK's financial success is primarily based on its shacks in the Northeast and the New York City metropolitan region, which account for roughly 40% of its total domestic company-operated shacks as of FY20. As a result, any adverse economic conditions in any of these regions might have a detrimental influence on the company's total performance.

Outlook:

• Q3FY21 Estimates: In its Q2FY21 press release, SHAK stated that it expects total revenues of USD 194-200 million in Q3FY21, with shack sales ranging from USD 188-193 million and licensing income ranging from USD 6-7 million. Compared to Q3FY20, SHAK expects Same Shack sales to be in the mid to high 20s%, with a shack level operating profit margin of about 15-17%.
• FY21 Estimates: The business anticipates opening 35-38 domestic operating shacks and 20-25 licensed ones in FY21. It also expects its total G&A expenses to be in the region of USD 86-88 million and pre-opening costs to be in the range of USD 13-14 million.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SHAK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SHAK's share price has fallen 32.16% in the past six months and is currently trading below the mid-point of the 52-week range of USD 64.02 to USD 138.38. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.77. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 90.78.

Considering the company's growth prospects, improvement in financial performance, expansion endeavors, associated risk, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 73.96, down 3.69% as of October 20, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Zix Corporation

ZIXI Details

Zix Corporation (NASDAQ: ZIXI) is a leading cloud supplier of email security, productivity, and compliance solutions for clients in healthcare, finance, insurance, and government. The company's services are email encryption, data loss prevention (DLP), advanced threat protection, unified archiving, and cloud data backup. ZIXI earns money by collecting subscription fees that range from one to three years.

Latest News

• New Integrations: On October 12, 2021, ZIXI announced that its simple Secure Cloud platform now offers a cloud-based data backup and recovery service. Clients now have comprehensive insight into communication security and compliance for Microsoft Office 365, Google Workspace, SharePoint, OneDrive, Salesforce, Box, and Dropbox.
• Bolster innovation for Email Encryption Services: On September 21, 2021, ZIXI announced the launch of its Secure Large File add-on for its Email Encryption. Consequently, users may be able to solve the challenge of securely transferring large files by permitting the transmission of any file type up to 100 gigabytes (GB) per message, with no storage limitations and no new recipient credentials.

H1FY21 Results:

• Rise in Revenue: Due to an increase in subscriber base, a high rate of existing customer renewals, and the realization of previously contracted revenue in its backlog, the company reported a 16.14% increase in revenues to USD 122.84 million in H1FY21 (ended June 30, 2021) compared to USD 105.77 million in H1FY20.
• Increase in Net Losses: However, it witnessed an increase in net losses to USD 5.39 million during H1FY21 from USD 2.75 million reported in H1FY20.
• Boost in ARR: As of Q2FY21, annual recurring revenue (ARR) of customer subscription was USD 252.44 million, up 16.91% YoY, from USD 215.9 million as of Q2FY20.

Key Risks: Sales to federal, state, and local government agency clients in the United States account for a substantial portion of the firm's revenue. As a result, any changes in public sector budgeting cycles or financing authorizations that might reduce public sector demand for ZIXI's services could affect the company's commercial prospects.

Outlook:

• Q3FY21 Estimates: According to ZIXI's Q2FY21 press release, the company expects sales to range between USD 64-64.4 million in Q3FY21. It also forecasts fully diluted GAAP earnings (loss) per share (attributable to common shareholders) for Q3FY21 to be in the range of USD (0.09)-(0.08), assuming a basic share count of 56.9 million.
• FY21 Estimates: Based on a 55.5 million basic average share count, FY21 revenues are expected to range from USD 253.1 to 253.9 million, with fully diluted GAAP profits (loss) per share ranging from USD (0.38) to USD (0.36).

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZIXI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ZIXI's share price has surged 29.24% in the past twelve months and is currently leaning towards the MID-band of the 52-week range of USD 6.05 to USD 10.37. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 73.37, indicating an overbought zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 7.93.

Considering the significant uptick in the stock price and other technical indicators, we believe the decent business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 8.53, up 5.57% as of October 20, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.