Jack in the Box
was a momentum play last year and today it returns as the Bull of
the Day, albeit a unique story that may have slightly higher risk
due to some reorganization within the company after noticing a
continuous decline in traffic due to macro concerns and
conservative spending in certain area restaurants.
After an extensive operational review and financial analysis
of its Qdoba Mexican restaurants, Jack in the Box has made the
decision to close 67 (10% of total) underperforming restaurants
under its Qdoba Mexican Grill brand by the end of fiscal 2013
(ending Sept 29, 2013).
There are currently 647 Qdoba restaurants worldwide, which
includes 340 company-owned units. When all is said and done, the
company expects to incur about $28 million as impairment charges
related to the closings and approximately $12 million in
lease-related costs during fiscal 2013.
Management believes that since the restaurants were not doing
well, closing them would improve the company's future profit and
enhance the cash flow position.
Even with the closures, Jack in the Box is still looking to
open 70-75 new Jack in the Box restaurants in 2013, 40 of which
will be company-owned restaurants. They will also be replacing
those closed Qdoba locations with nearly 60-70 new Qdoba
restaurants in 2014.
As a Zacks Rank #1, Jack in the Box is probably doing something
right. At almost 25 times forward earnings, they don't
appear to be that cheap, but when you look closer, it's about the
turn around that analysts are expecting in the future.
Jack is expected to deliver 18% year over year growth on a
decline in revenue (I suspect from restructuring, closures,
Going into their report on the 14th of August, the stock seems
to be getting some favorable upgrades from analysts, both in the
current and next quarter, but more importantly in FY2013 and
Analyst estimates for FY2013 are up 3 cents to $1.64 and up 8
cents for FY2014 over the last 90 days.
ESP for the current quarter is also positive at 2.63%, when
combined with the Zacks Rank of 1 gives a good indication for a
Some argue the lack of a catalyst for growth, but I think that
with their diverse offerings and proactive management approach,
cutting weak stores and clever advertizing make this stock worth
your time and money for a longer term trade.
JACK has been a slow and steady wins the race type stock.
Interestingly enough, the shares have whether market volatility
quite well, which is why I tend to favor them.
Shares remain in a bullish channel and have strong support
around the $39.00 level. Below that the 50 and 200 day
moving averages will also provide support at the $38.27 and
$30.68 areas as well.
Frankly, I would be concerned if JACK fell below its 50 day
moving average and remained below it for more than 3 days, as it
hasn't been there since November of last year.
Shares are slightly overbought at the moment with much of the
market, so wait for a pullback before entering. Shares tend to
move between 1 and 1.5% daily, so they are slightly less volatile
than the S&P 500.
Look for the stock to break out of its current channel to the
upside and into the $50 range over the coming months at which
point I'd look to take profits.
I'd look to JACK versus their competition likeWendy's
Jared A Levy is one of the most highly sought after traders in
the world and a former member of three major stock exchanges.
That is why you will frequently see him appear on Fox Business,
CNBC and Bloomberg providing his timely insights to other
investors. He has written and published two tomes,
"Your Options Handbook"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
- Learn to buy stocks likely to have robust earnings BEFORE they
- Technical Analysis + Zacks Rank. Best of both worlds approach
to find timely trades.
Follow Jared A Levy on twitter at @jaredalevy
Like Jared A Levy on
BURGER KING WWD (BKW): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
JACK IN THE BOX (JACK): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
To read this article on Zacks.com click here.