Jack in the Box Inc. (NASDAQ:JACK) shares are falling 9% in pre-market trading today after the Mexican food chain Qdoba parent-company posted first quarter fiscal 2017 results that failed to impress. Though Oppenheimer analyst Brian Bittner acknowledges the misses in the print are not ideal, he believes investors should consider the bigger context of the industry recently facing challenges.
Bullish on the company’s long-term advantages, the analyst reiterates an Outperform rating on JACK with a price target of $125, which represents a 33% increase from where the stock is currently trading.
Qdoba appeared to be the weak link this quarter as Bittner notes, “While JITB system-wide comps were roughly in line, Qdoba missed, causing largest profit delta vs. Street.” Bittner attributes the miss to company-owned profits of -$0.03, Qdoba company-owned profits of -$0.08, interest of -$0.02, as well as tax rate and share count of -$0.02. However, the analyst sees the misstep as “[…] partially offset by better G&A (+$0.06) and franchise profits (+$0.03).”
Fiscal first quarter same-store sales underperformed at -1.4% compared to the Street’s expectations of 0.4%, resulting in a margin of 13.1% failing to hit the Street’s 15.7%. “We’d like to hear plans to improve profitability metrics. New ’17 SSS guidance (flat) suggests 2H SSS are +1.7%, vs. Street’s +3.1% estimate,” opines the analyst.
For the second quarter of 2017, Jack management revised EPS guidance from $4.55 to $4.75 down to $4.25 to $4.45. Additionally, JACK tweaked restaurant margin outlook from 20% to 21% down to 19.5% to 20%. Moreover, the company warns to anticipate 10 less Qdoba company-owned opening as well as at a 38% to 39% tax rate compared to the prior 38% tax rate.
“Despite our thorough work, we miscalculated the setup into the print—JACK is trading at $94/share pre-market. This suggests a 10x EBITDA multiple if estimates revise 5%-ish lower. This attractive discount may force investors to view JACK through a SOTP lens, especially if Qdoba evolves into a strategic alternatives candidate. Clients have already asked if the thesis is broken, owing to mgmt’s reduction in ’17 guidance. While disappointing, the whole industry has seen a recent demand downtick, and the core thesis still has drivers for powerful upside if February sales weakness proves transitory,” Bittner contends.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Brian Bittner is ranked #94 out of 4,494 analysts. Bittner has a 70% success rate and garners 11.8% in his yearly returns. When recommending JACK, Bittner gains 30.3% in average profits on the stock.
TipRanks analytics demonstrate JACK as a Strong Buy. Based on 6 analysts polled by TipRanks in the last 3 months, all 6 rate a Buy on JACK stock. The 12-month average price target stands at $125.50, marking a 21% upside from where the shares last closed.