On Mar 8, 2014 Zacks Investment Research upgraded
Jack in the Box Inc.
) to a Zacks Rank #1 (Strong Buy) driven by the strong fiscal
first quarter 2014 results posted by the company in Feb 2014.
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JACK IN THE BOX (JACK): Free Stock Analysis
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Why the Upgrade?
Jack in the Box posted strong fiscal first quarter 2014 results
with earnings of 75 cents beating the Zacks Consensus Estimate of
66 cents by 13.6%. Earnings increased 27.1% year over year. The
upside is attributable to top-line growth, decline in operating
costs and lower share count. The decline in operating costs can
be attributed to the company's continuous efforts to improve its
costs structure by identifying opportunities to reduce general
and administrative expenses.
Though revenues declined marginally year over year, it easily
surpassed the consensus mark by 3.4%, which we believe was due to
year over year improvement in comparable same store sales.
Improved comps during the fiscal first quarter reflect less
discounting and continued growth in catering sales. The company
operates and franchises Jack in the Box quick-service restaurants
and Qdoba Mexican Grill fast-casual restaurants. As in the fiscal
first quarter, the company expects same store sales at both of
its brands to continue to grow year over year in the fiscal
second quarter as well as fiscal 2014.
Driven by the strong results and an optimistic outlook, estimates
for 2014 largely moved upwards. Moreover, the average positive
surprise for the last four quarters came in at 8.42%.
Jack in the Box is also working on its refranchising strategy. We
believe franchising a large chunk of its brands would allow it to
generate strong free cash flow, thereby helping it to maintain a
healthy balance sheet. Moreover, if a major portion of its
business is franchised, the company will less likely be affected
by inflation compared to its peers.
Menu innovation is also a driving force and the key to the
success of restaurateurs. In order to improve brand recognition
and cater to changing consumer demand, Jack in the Box is
upgrading its offerings to provide differentiated value
propositions. Recently, the company came up with new Monster Taco
flavors, Bacon Ranch and Nacho, which would aid in improving
traffic. Going forward, the company aims at further innovation
and intends to provide limited time offers.
Other Stocks to Consider
Other players in the restaurant industry, which look attractive
at current levels, include
Brinker International, Inc.
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
), all with a Zacks Rank #2 (Buy).