We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Why Investors Should Avoid Jack in the Box Stock for Now
Read MoreHide Full Article
Based in San Diego, Jack in the Box Inc. (JACK - Free Report) is a restaurant company that operates and franchises through Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants.
While Jack in the Box forms nation’s one of the largest hamburger chains with 2,260 outlets, primarily in western and southern U.S., including one in Guam, Qdoba is a leader in fast-casual dining with 717 restaurants operating primarily throughout the U.S. as well as Canada.
However, Jack in the Box, carrying a Zacks Rank #4 (Sell), has lost 5.7% year to date, faring miserably against the Zacks categorized Retail-Restaurants industry’s gain of 11.5%.
Let’s take a look at the factors that make the stock look unattractive at this point.
Problems Rife at Qdoba
Ever since its acquisition in 2003, the Qdoba brand has been helping the company enhance core growth and balance the risks associated with growing solely in the highly competitive hamburger segment of the QSR industry. It particularly enhanced its geographic presence and aided the company’s top-line growth with comps at company-owned Qdoba restaurants growing 5.7% and 8.3% in 2014 and 2015, respectively.
However, the brand had become more of a drag in recent quarters given poor restaurant level execution and a choppy sales environment with comps increasing a mere 1.7% in 2016. Notably, the same were down 1.4% and 5.9%, respectively, in the first two quarters of fiscal 2017.
Management is thus undertaking a strategic review of the brand and even considering possible alternatives. However, Qdoba's recent performance and the adverse impact on the overall valuation of the company by having two different models may continue to hamper the stock’s near-term performance.
Industry Headwinds
Over the past few quarters, the U.S. restaurant space has not been too enticing. Despite economic growth, somewhat lower energy prices and higher income, consumers increased their spending only modestly on dining out, which resulted in low consumption over the past few quarters. This is because, along with wage growth, inflation is also on the rise, which translates to lower real income and in turn less disposable income. The situation has taken a worse turn, thanks to higher health care costs and tightened credit availability in the U.S.
Moreover, as consumers demand high-quality products at lower prices, it is pushing grocery stores to decrease their food prices in order to remain competitive. This, in turn, is resulting in a bigger gap between food-at-home and food-away-from-home indices.
Consequently, same-store sales growth has been dull in a difficult sales environment. Traffic too has been weak. In fact, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the restaurant industry as a whole, thereby continuing the somber mood. As a result, Jack in the Box’s sales has come under pressure.
Fiscal 2017 Guidance Trimmed
Along with its second-quarter fiscal 2017 results reported last month, the company stated that earnings per share, excluding restructuring charges and gains or losses from refranchising are expected to be in the range of $4.10 to $4.30 in fiscal 2017. This projected range is lower than the previously announced guidance (along with first-quarter fiscal 2017 results) of $4.25 to $4.45 per share.
Moreover, the company anticipates comps to grow approximately 1% at Jack in the Box system restaurants down from around 2% expected earlier. Meanwhile, comps at Qdoba company restaurants are projected to decline in the band of roughly 1—2%. Earlier, comps were expected to remain flat.
Consolidated restaurant operating margin is expected to be roughly 19% as compared with the previous expectation in the range of 19.5% to 20%.
Downward Revision in Estimates
The Zacks Consensus Estimate for Jack in the Box’s current quarter’s earnings has moved down 9.9%, reflecting nine downward revisions versus none upward, over the last 60 days. Also, current year’s earnings estimates have inched down 3.4%, on the back of nine downward revisions versus no upward revision. All these negative earnings estimate revisions testifies’ analysts shattering confidence in the company and thus adds to the pessimism in the stock.
Lackluster ROE
Jack in the Box’s trailing 12-month return on equity (ROE) of -58.08% undercuts its growth potential. Further, it compares unfavorably with ROE of 8.15% for the broader industry, reflecting the fact that it is less efficient in using shareholders’ funds.
Stocks to Consider
Better-ranked stocks in this sector include Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Fogo de Chao, Inc. . While Dave & Buster's sports a Zacks Rank #1 (Strong Buy), Darden and Fogo de Chao carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dave & Buster's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 30.50%. Meanwhile, for fiscal 2017, EPS is projected to witness a rise of 23.2%.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.35%. Further, for fiscal 2017, EPS is expected to grow nearly 13%.
The Zacks Consensus Estimate for Fogo de Chao’s 2017 earnings moved up 2.2%, over the past 60 days. Moreover, for 2017, EPS is expected to improve 6.4%.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Image: Bigstock
Why Investors Should Avoid Jack in the Box Stock for Now
Based in San Diego, Jack in the Box Inc. (JACK - Free Report) is a restaurant company that operates and franchises through Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants.
While Jack in the Box forms nation’s one of the largest hamburger chains with 2,260 outlets, primarily in western and southern U.S., including one in Guam, Qdoba is a leader in fast-casual dining with 717 restaurants operating primarily throughout the U.S. as well as Canada.
However, Jack in the Box, carrying a Zacks Rank #4 (Sell), has lost 5.7% year to date, faring miserably against the Zacks categorized Retail-Restaurants industry’s gain of 11.5%.
Let’s take a look at the factors that make the stock look unattractive at this point.
Problems Rife at Qdoba
Ever since its acquisition in 2003, the Qdoba brand has been helping the company enhance core growth and balance the risks associated with growing solely in the highly competitive hamburger segment of the QSR industry. It particularly enhanced its geographic presence and aided the company’s top-line growth with comps at company-owned Qdoba restaurants growing 5.7% and 8.3% in 2014 and 2015, respectively.
However, the brand had become more of a drag in recent quarters given poor restaurant level execution and a choppy sales environment with comps increasing a mere 1.7% in 2016. Notably, the same were down 1.4% and 5.9%, respectively, in the first two quarters of fiscal 2017.
Management is thus undertaking a strategic review of the brand and even considering possible alternatives. However, Qdoba's recent performance and the adverse impact on the overall valuation of the company by having two different models may continue to hamper the stock’s near-term performance.
Industry Headwinds
Over the past few quarters, the U.S. restaurant space has not been too enticing. Despite economic growth, somewhat lower energy prices and higher income, consumers increased their spending only modestly on dining out, which resulted in low consumption over the past few quarters. This is because, along with wage growth, inflation is also on the rise, which translates to lower real income and in turn less disposable income. The situation has taken a worse turn, thanks to higher health care costs and tightened credit availability in the U.S.
Moreover, as consumers demand high-quality products at lower prices, it is pushing grocery stores to decrease their food prices in order to remain competitive. This, in turn, is resulting in a bigger gap between food-at-home and food-away-from-home indices.
Consequently, same-store sales growth has been dull in a difficult sales environment. Traffic too has been weak. In fact, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the restaurant industry as a whole, thereby continuing the somber mood. As a result, Jack in the Box’s sales has come under pressure.
Fiscal 2017 Guidance Trimmed
Along with its second-quarter fiscal 2017 results reported last month, the company stated that earnings per share, excluding restructuring charges and gains or losses from refranchising are expected to be in the range of $4.10 to $4.30 in fiscal 2017. This projected range is lower than the previously announced guidance (along with first-quarter fiscal 2017 results) of $4.25 to $4.45 per share.
Moreover, the company anticipates comps to grow approximately 1% at Jack in the Box system restaurants down from around 2% expected earlier. Meanwhile, comps at Qdoba company restaurants are projected to decline in the band of roughly 1—2%. Earlier, comps were expected to remain flat.
Consolidated restaurant operating margin is expected to be roughly 19% as compared with the previous expectation in the range of 19.5% to 20%.
Downward Revision in Estimates
The Zacks Consensus Estimate for Jack in the Box’s current quarter’s earnings has moved down 9.9%, reflecting nine downward revisions versus none upward, over the last 60 days. Also, current year’s earnings estimates have inched down 3.4%, on the back of nine downward revisions versus no upward revision. All these negative earnings estimate revisions testifies’ analysts shattering confidence in the company and thus adds to the pessimism in the stock.
Lackluster ROE
Jack in the Box’s trailing 12-month return on equity (ROE) of -58.08% undercuts its growth potential. Further, it compares unfavorably with ROE of 8.15% for the broader industry, reflecting the fact that it is less efficient in using shareholders’ funds.
Stocks to Consider
Better-ranked stocks in this sector include Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Fogo de Chao, Inc. . While Dave & Buster's sports a Zacks Rank #1 (Strong Buy), Darden and Fogo de Chao carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dave & Buster's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 30.50%. Meanwhile, for fiscal 2017, EPS is projected to witness a rise of 23.2%.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.35%. Further, for fiscal 2017, EPS is expected to grow nearly 13%.
The Zacks Consensus Estimate for Fogo de Chao’s 2017 earnings moved up 2.2%, over the past 60 days. Moreover, for 2017, EPS is expected to improve 6.4%.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>