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Wedbush analysts added Jack in the Box (NASDAQ:JACK) to their “Best Ideas List” on Monday, advising clients that worries about new legislation in California are overblown.
Shares of the California-concentrated chain traded in a volatile manner in recent weeks alongside concerns on the CA AB257, which will allow fast food workers to negotiate on pay, working conditions, and training, with the potential to raise minimum hourly pay to $22. While the bill is currently facing a legal challenge, the prospect of it coming into enforcement has hung over the stock.
However, Wedbush believes these concerns have been unduly amplified and have led to significant undervaluation of Jack in the Box (JACK). The note cited a double-digit decline from late August is not justified as “any impact from AB257 prior to [2025] is low.”
“Even without refranchising, we view the perceived risk from CA AB257 as overblown,” the team said. “We see little risk of AB257 taking effect prior to 2025, with a high probability of it taking effect in 2026 or not at all (should the referendum in 2024 result in a 'no' vote). By this time, not only will JACK's company-owned mix be lower post the above-mentioned refranchising, but wages will have naturally gravitated much closer to where the Board may decide to set the minimum wage at.”
Elsewhere, Wingstop (WING) was removed from the list of top picks.
“We continue to view Wingstop's business model as among the best positioned to capitalize on post-COVID market share gains,” the firm’s analysis stated. “However, we had added Wingstop to the Wedbush Best Ideas List on March 23, 2022 with a view towards [second half of 2022] catalysts like the addition of UberEats and the late-Q3 chicken sandwich rollout. With both of these catalysts in the rear view, we remove WING from the [Best Ideas List].”
A Buy-equivalent rating was nonetheless maintained on the stock.
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