Jack in the Box Bottoms and the Rebound is on

Key Points

• Jack in the Box struggles in Q2, but re-franchising efforts are gaining traction. 
• Guidance was maintained with weak comps but widening margins. 
• Analysts view this stock as a deep value with a potential for a 50% upside. 

Jack in the Box NASDAQ: JACK share prices tumbled over the last year as the Del Taco acquisition weighed on sentiment, but the rebound is on, and the upside looks tasty. The acquisition was questionable, and the rationalization of the business took longer to gain traction than expected, but it is gaining traction. The Q2 results aren’t stellar but reveal the impact of Del Taco's re-franchising efforts and point to a return to growth by fiscal year-end with accelerated bottom-line results. 

How high can the rebound go? It can go quite high, using the analysts as a gauge. Trading near $53, JACK shares were at the lowest level since the pandemic bottom and offered up a deep value opportunity relative to their outlook. At $53, even at $57.50, the stock is below the analysts’ lowest target, with a potential for a 50% upside at the consensus midpoint. 

Jack in the Box has Mixed Quarter: Positioning for Growth 

Jack in the Box had a mixed quarter. The $365.35 million in revenue is down 7.7% from last year and missed the consensus target by 100 basis points. Still, the weakness is primarily due to re-franchising compounded by soft market conditions. The core Jack in the Box brand saw sales contract by 1.6% on a -2.5% contraction in comps offset by a slightly higher store count. The smaller Del Taco segment contracted 1.3% on a 1.4% decline in comps. 

The strength is seen in the margin. Sales trends and re-franchising impacted the company’s margins, but lower SG&A helped offset this. The net result is a 6% decline in adjusted EBITDA compared to the 7.7% top-line decline and adjusted earnings that are roughly flat compared to last year. 

The adjusted $1.46 is a penny shy of last year’s adjusted result and aided by share repurchases. Jack in the Box repurchased 0.2 million shares in Q2 to bring the average count down by 5% compared to last year. The company has $210 million left under the current authorization, so it is expected to continue repurchasing as the year progresses. 

Jack in the Box Capital Returns Come With Risk

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