Starboard Value CEO Jeff Smith on New Shake Shack Stake
Speakers
Jeff Smith
— CEO, Starboard Value
Summary
Starboard Value CEO Jeff Smith reveals a large stake in Shake Shack, arguing it is deeply undervalued and that US franchising can accelerate growth significantly. He also provides positive updates on Lamb Weston and CarMax, highlighting operational turnarounds and new leadership.
- Jeff Smith discloses a new Shake Shack position worth several hundred million dollars, calling the stock 'too cheap' at ~10x EBITDA.
- He sees a major catalyst in US franchising, which could double the growth rate and bring the 1,500-store target much sooner.
- Smith praises current Shake Shack CEO Rob Lynch and says no massive operational changes are needed.
- Lamb Weston is recovering from over-expansion and supply issues; earnings have stabilized and the focus is now on improving earnings growth.
- CarMax is gaining momentum under new CEO Keith Barr, becoming more efficient in buying and refurbishing cars to lower prices and regain share.
- Smith emphasizes that stock-specific volatility creates great entry points for disciplined activist investors.
Ideas
Undervalued, high-growth, franchising to accelerate.
Shake Shack is too cheap at roughly 10x EBITDA, a multiple that should be twice as high given mid-teens growth and a high-quality brand. The opportunity is not operational fixes but accelerating growth by layering on US franchising, which can materially lift the unit growth rate and get the company to 1,500 (or even 2,500) stores years faster, creating a much higher NPV.
Fry moat, earnings recovery underway.
Lamb Weston is a French fry business with a moat and limited players. After a period of over-expansion and supply issues, execution has improved under new leadership, volumes are back, earnings have stabilized, and the company is now focused on improving its earnings growth trajectory to deliver sustainable earnings growth.
Cheap, new CEO driving efficiency, share gains.
CarMax was bought near book value at an unjustifiably cheap multiple. Under new CEO Keith Barr, the company is becoming more efficient in buying and refurbishing cars, which should lower consumer prices while preserving margins and regaining market share. Its omni-channel model with physical lots should be superior to Carvana's, making the stock a great investment.
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