Why Longbow Prefers Habit To Shake Shack Heading Into Earnings

Longbow Research issued a note Wednesday on Shake Shack Inc (NYSE: SHAK) and Habit Restaurants Inc (NASDAQ: HABT).

Analyst Alton Stump preferred Habit Restaurants over Shake Shack ahead of earnings and had "greater confidence Habit Burger will prove to be a portable concept across most, if not all, of the U.S. in comparison to Shake Shack."

Stump pointed out that Shake Shack's success had been more "insulated" with its focus mainly in Manhattan. By comparison, Habit offered "healthy menu items" that could "enable the concept to reach a broader consumer base" with more frequent visits than Shake Shack.

The analyst added that Habit could also outperform Shake Shack in coming quarters due to "greater leverage to lower gasoline prices and larger domestic store base that is less exposed to new store cannibalization in comparison to Shake Shack."

Stump maintained a Buy rating on Habit, which reports March 10, and an Underperform rating on Shake Shack, which reports March 11.

For Habit's EPS, the firm modeled $0.02 for the fourth quarter compared to consensus at break-even. For 2015, estimated EPS was $0.21 versus consensus of $0.15. 2016 estimated EPS was $0.29 versus consensus of $0.23.

For Shake Shack, the firm expected break-even earnings for the fourth quarter versus consensus at a $(0.03) loss. For 2015, estimated EPS was $0.03 versus consensus of $0.05. 2016 estimated EPS was$0.07 versus consensus of $0.09.

Shake Shack Inc recently traded at $44.70, up 0.04 percent.

Habit Restaurants recently traded at $31.20, down 0.73 percent.