Jack In The Box Is A Buy On Post-Earnings Weakness

Key Points

• Jack In The Box wobbled after a solid report but the market bought the stock when it dipped. 
• The guidance is impressive and may be raised again later this year. 
• Dual tailwinds are supporting this stock and will drive it higher over the long term.

Jack In The Box NASDAQ: JACK is benefiting from the dual tailwinds of strength within the fast-food industry and the strength of its newest CEO. Mr. Harris’s work in the few years since taking the helm is reminiscent of another highly successful CEO, Mr. Niccol of Chipotle Mexican Grill NYSE: CMG. Mr. Harris, like Mr. Niccol, is leaning into the company’s strengths while leveraging its growth potential to lead the industry. The takeaway is that Jack In The Box and names like Chipotle, McDonald’s NYSE: MCD, and Restaurant Brands International NYSE: QSR are among the most-upgraded stocks on Marketbeat. The analysts are raising their sentiment and price targets, a recipe for a rally. 

Jack In The Box Has Wow Quarter, Guides Higher 

Jack In The Box had a fantastic quarter with solid sales growth in Jack and Del Taco franchises. The company reported $395.74 million in sales, a gain of 22.8% over last year. The gain includes favorable 1-offs that reduce growth, but the segment results are also solid. The core Jack In the Box franchise grew by 9.8% on a 9.5% comp to deliver revenue nearly 30% greater than 3-years ago. New to the fold, Del Taco grew by 3.2% on a 3.2% comp.

The margin news is also impressive. The company improved the company-owned restaurant and franchise-level margins to leverage the top-line strength. Restaurant-level margin improved by 640 basis points and franchise margin by 180, to leave the adjusted earnings up sharply compared to last year. The adjusted $1.47 is up $0.31 compared to last year, beating the consensus by $0.25 or more than 2000 basis points. The results include $1.4 million in positive impacts that are not expected to recur but are well above the Marketbeat.com consensus even when backing that $0.05 impact out. 

Guidance is favorable to higher share prices. The company raised its guidance for FY earnings to $5.90 to $6.10 versus the previous high of $5.65. Based on the pipeline for new stores, the company should be able to sustain a high level of growth for the next several quarters at least. Jack In The Box signed 4 development agreements for 33 new stores, bringing the total to 335 since the development program was initiated. There are about 300 stores left to build, equaling roughly 13% of the footprint. Many planned stores are in new markets and may bring in above-average results while opening the door to additional store-count growth.

Jack Returns Cash To Shareholders 

Jack In The Box’s results allow it to return capital to shareholders. The company paid its quarterly dividend and repurchased shares for $18.6 million. The company raised its outlook for share repurchases to $70 million for the year, which will leave about $71 million under the current authorization. That’s about 3.5% of the market cap in 2023 on top of the 1.85% dividend, and there is a capacity for increases, although 1 is not expected soon. The company is focused on growth and positioning for the future, which are capital-intensive activities. 

The chart is favorable to bulls, but the post-release action is mixed. The stock jumped in premarket trading, but the move was expected, and profit-takers were ready to sell. The good news is that investors are buying on the dip and showing support above critical levels. Assuming the market can remain above those levels, in the $92 to $93 range, it should be able to regain its footing and move higher. If not, this stock may have entered a range it will keep until more news comes out later this year.