Jack in the Box (NASDAQ:JACK) 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, etc).
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 FY2014.
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 beat.
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.