John Appel's  Instablog

Jamba Inc. (JMBA) announced its first quarter 2009 results, and issued its 10-Q, after the market’s close yesterday. Management has made solid progress on its “BLEND” plan to reduce costs, expand its in-store food offerings, license the brand for packaged food items, and shift its mix of company-owned versus franchised stores. Sales were in-line with my expectations.  Costs were better than expected.  Below is a summary of my initial take-aways.  For more details, please see the complete article at www.johnappel.com.

Based on the first quarter results, I plan to revise my March 27th financial projections.  I expect to revise my 2009 sales forecast to $300-$305 million from $317 (assuming 50 more stores refranchised in H2); to revise store-level EBITDA to $48-$50 million from $42.5 million; and to revise total adjusted EBITDA to $13-$15 million from $7.6 million. These figures do not include any impact from the potential sale of development agreements in connection with the company’s refranchising efforts.

Given my new estimates of 2009 store-level EBITDA and adjusted EBITDA, I am increasing my near-term share price target to $1.50 from $0.95. I am targeting $1.75 per share in the second half of 2009. The $1.50 price target implies an enterprise value of approximately 6.5x 2009 forecast EBITDA. The $1.75 price target implies an enterprise value of approximately 7.5x 2009 forecast EBITDA.  I would expect this discount versus comparable company multiples to persist until the company’s menu expansion efforts begin to translate into improvements in same-store sales.

Potential catalysts for share appreciation include: meaningful Q2 profits; positive results from the 200-store expanded food test; significant additional brand licensing deals; the refranchising of a considerable number of stores (for a reasonable amount of cash); and a comprehensive balance sheet fix. The company stated on the earnings call that it is still exploring options for the latter. Positive surprises on any of these fronts could generate upside for the stock beyond my price targets.

Disclosure: (Author is long JMBA)