Jack In The Box Newest CEO Delivers On Value
Jack in the Box (NASDAQ: JACK) is among our favorite picks in the fast-food industry. The stock is incredibly undervalued relative to its peers and deep into a nationwide rationalization that has revenue growing and profitability on the rise. The strategy is founded on three pillars that include a focus on franchises, unifying the consumer experience across the network, and expanding into new markets including the high-growth international market. While the guidance for fiscal Q4 was a little iffy, the outlook is still bright and the stage is set for this stock to move higher later in the year.
Jack in the Box Has A Strong Quarter
Jack in the Box reported $269.50 million in net consolidated revenue for a gain of 11.2% over last year. This is up 4.6% sequentially, beat the consensus by 400 basis points, and up 22.2% versus the 2019 comparable period. System-wide, sales grew 10.6% on a 10.2% increase in comp-store sales that was offset by a small decline in unit count. The company's unit count declined by 1.1% on the combination of expiring agreements and repositioning efforts. On a comp basis, the company says ticket counts and check averages added evenly to the growth.
Moving down the report, The company says that the non-GAAP restaurant-level margin held steady at 25.4% from last year. The company says sales leverage is being offset by rising wage and input costs but so far, price increases are helping to maintain the balance. On the bottom line, the company reported $1.80 in GAAP earnings and $1.79 in adjusted earnings to beat the consensus by $0.30 cents post an increase of 26.1% over last year.
Looking forward, the company is facing a pretty tough comp in the 4th quarter but should produce YOY growth in the range of 5.4% to 10% at least. The analysts are expecting revenue growth in the range of 9.5% and it will be fueled by expansion as well as organic strength. The company is expecting to open more than 60 new stores over the course of the next few quarters and that should provide a low to mid-single-digit tailwind to revenue.
Jack in the Box Is Well Worth The Investment
Not only is Jack in the Box a growing concern within the fast-food space but it also offers a value relative to its peers, it generates large amounts of free cash flow, has a strong balance sheet, and gives value to its investors. Trading at only 15X its earnings, it is a deep value compared to Restaurant Brands International at 23X it earnings, McDonald's at 26 earnings, and Wendy's at 30 earnings.
The company repurchased $65 million worth of its stock over the past quarter and has another $70 million left that we expect to see used before the end of the fiscal year. At current share prices, that's worth a little more than 3% of the market cap and there is also a dividend to consider. The company pays 1.7% with a payout ratio in the range of 20% and every expectation for future dividend increases as well.
The Technical Outlook: Jack in the Box Pulls Back To Support
Shares of Jack In The Box fell about 5% in the wake of the Q3 earnings report but bargain hunters, bottom seekers, and value-minded dividend growth investors are already scooping up the shares. Support appears to be strong right around the $100 level which is consistent with support earlier in the year. Assuming this level holds, we expect to see Jack in the Box begin consolidating and then moving higher well before the end of the year. In our view, this stock should be trading at a much higher multiple and only needs the right catalyst to trigger the expansion. When that happens Jack in the Box could move up to the $150 range or higher.
Companies in This Article:
