Before you bid, ensure you read properly.
Note: The general importance of the task is big – This is for a job opportunity, so please pay attention to this detail. The forecast to be extended for the next four quarters, so Q2 2024 – Q1 2025 and an additional two quarters. So including Q2 2025 and Q31) would make sure the financial model is formatted well. It doesn’t/shouldn’t necessarily match the formatting of the raw data tabs but should be formatted in a visually appealing way2) the forward projections/estimates should be relatively in line with street consensus (i.e. – the projections from JP Morgan) but will obviously be different because of assumptions used to make those forecasts deliverables are putting together a financial model and a one page write up deciding whether I’m long or short the stock I was given.
The financial model should support the investment thesis in the write up.The stock is shake shack. I was given a company model for them from JP Morgan research so a lot of the historical data can be pulled from that. The model should be a three statement model that builds to a price target. The difficult part will be determining what to make assumptions and how they should be projected. The one pager should have an analysis overview, industry overview/where it’s headed, operational analysis, risks, something notable/tailored to shake shack, and a conclusion. It should also include the price target, buy/sell rating and an eps estimateSo to be clear the model should be a discounted cash flow analysis (DCF). So it should have the three financial statements like I outlined in my email with estimates and projections and then also have a free cash flow build, quick weighted average cost of capital build, and then a DCF valuation that takes enterprise value based on the DCF, backs into equity value and finds the implied share price from there.
CASE STUDY
TICKER: SHAK
Instructions:
• Analyze and develop an investment case (long or short) for SHAK.
• Write a one page “idea pitch” that lays out the foundation of your thesis.
• Support your thesis with a well thought out financial model. This is your time to show your attention to detail,
creativity, and ingenuity.
Materials
• Last four earnings call transcripts
• JPM’s most recent Company model
• BAML Initiation Report
“End Product (Please submit)”:
• Write a one-page “idea pitch”
• Financial model supportive of your investment case
FAQs
1. Is there an advantage to submitting the case study earlier than required? No.
2. Is there a specific format for the model and write-up? No. The team does have a standardize format for these
tasks, but as it relates to the case study, these formats will not be provided. Again, this is your time to shine and
show your creativity.
3. Can you produce more than one page for your write up? No.
Please see attached the relevant information to be used for the case study on Shake Shack for a
long/short equity job position at a hedge fund. The deliverables are to build a financial model and a
one page write up explaining my investment thesis and decision to long or short the stock. The files I
was provided with are Bank of America’s initiation report, Earnings call transcripts from Q2 2023 Q1 2024, general case study instructions, and JP Morgan’s company model from their sell-side
research team in excel. I have also attached additional files that I think will be helpful, which I will
explain below.
I need to make sure the model that is put together aligns with the one page investment thesis write
up. For most of these model tests it is typical to decide to long the investment, so please gear the
model in that direction as most long/short hedge funds are primarily long-driven. The model should
be built out in new tabs to the right of the raw data provided in the excel file. This should be a full
three statement model with an income statement, cash flow statement, and balance sheet
statement. Since this is for a hedge fund and we are determining a price target, I think projecting out
the next four quarters is reasonable. So Q2 2024 – Q1 2025. Please build out the model with
historical data by quarter from Q1 2022 – Q1 2024 and then project for those next four quarters.
I think the first step would be to read key filings like the most recent 10-K or 10-Q (which I did not
attach and can easily be found online), and the earnings call transactions. These transcripts,
especially in the Q&A section, can give you a good idea on what the key debates about the company
are. A lot of this model and its projections are going to be based on assumptions that need to be well
thought out, unique, and grounded in fact. For example, Shake Shack’s shareholder letter (which I
have attached below) has good information on inflationary data for beef and paper. This can be
factored into your assumptions when determining the costs of these things going forward, you may
also just need to source something online that shows what beef-cut prices are currently at. Please
also make sure all assumptions are detailed within the financial model. If it’s an assumption based
on outside data, like the beef inflationary data example I mentioned, please make this a note within
one of the excel cells so it can be read when you hover your mouse over it. Note, please make sure
no one’s name is shown in these cell notes when they are inputted. These cell notes can also be
inputted where you think appropriate to help map lines of thinking and general assumptions for the
reviewer. For all assumptions that are made based on, for example a percentage of sales, please
build those out below the appropriate financial statement.
For sales and other costs, you could model based on a per store weekly basis. So, you can take the
average of the number of stores between the previous quarter and the current quarter and multiply
this number by 13 (the number of weeks in a quarter). This should provide you with the number of
store weeks per quarter and you can use this for a number of things like to estimate sales, gauge
labor expenses and other Operating Expenses, and even factor in seasonality (more people go out
and eat during the warmer/summer months).
Additionally, other macro restaurant/fast casual trends that are found from reliable resources online
(if you do use these, please include the URL in the cell note the assumption is detailed in) can be
taken into consideration when modeling certain items, but again please make sure they are noted in
cells so assumptions are all clearly laid out. Further, things like LTOs (limited time offers), which is
also outlined in the Bank of America file, could be used in the
model since that helps drive revenue (not sure if it would make sense to do this based on other
things, but something to consider). Looking at valuation for other fast casual places may be helpful
(although this may not be the most relevant).
Although it’s a small portion of revenue, the licensing segment of revenue may be trickier to model.
Please be diligent and reasonable when modeling this out.
Ultimately, the model needs to build out to a price target and EPS for the one page write up. Please
be creative but reasonable with assumptions, the forward projections shouldn’t be wildly different
from previous financial results, but should show growth.
For the one page write up, I have included an example from a previous project I was on for Macy’s.
Please use that format and structure when writing the write up for Shake Shack. Within the write up,
please include relevant information that supports the long investment thesis and is based on the
model. You can discuss general sentiment within Shake Shack’s market (briefly), how similar
restaurants are performing (briefly), key operational analysis, strategy going forward, important KPIs,
key news items for the company such as their new CEO and COO, etc.
I realize this is a lot to go off of but hopefully it provides direction and makes things more clear.
Doing well on this case study for this job is incredibly important to me, so please let me know of any
questions.
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Formatting
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Citation
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