After an extensive operational reviewand financial analysisof its Qdoba Mexican restaurants, Jack in the Box has made the decisionto close67 (10% of total) underperforming restaurants under its Qdoba MexicanGrillbrand by the end of fiscal 2013 (ending Sept 29, 2013).
There are currently 647 Qdobarestaurants worldwide, which includes340 company-owned units. When all is said and done, the company expectstoincur about $28 million as impairment charges related to the closingsandapproximately $12 million in lease-related costs during fiscal 2013.
Management believes that since therestaurants were notdoing well, closing them would improve the company’s future profit andenhancethe cash flow position.
Even with the closures, Jack in theBox is still looking toopen 70-75 new Jack in the Box restaurants in 2013, 40 of which will becompany-ownedrestaurants. They will also be replacing those closed Qdoba locationswith nearly60-70 new Qdoba restaurants in 2014.
As a Zacks Rank #1, Jack in the Box is probably doingsomething right. At almost 25 timesforward earnings, they don’t appear to be that cheap, but when you lookcloser,it’s about the turn around that analysts are expecting in the future.
Jack is expected to deliver 18% yearover year growth on adecline in revenue (I suspect from restructuring, closures, etc).
Going into their report on the 14thof August,the stock seems to be getting some favorable upgrades from analysts,both inthe current and next quarter, but more importantly in FY2013 and FY2014.
Analyst estimates for FY2013 are up 3cents to $1.64 and up8 cents for FY2014 over the last 90 days.
ESP for the current quarter is alsopositive at 2.63%, whencombined with the Zacks Rank of 1 gives a good indication for a beat.
Some argue the lack of a catalyst forgrowth, but I thinkthat with their diverse offerings and proactive management approach,cuttingweak stores and clever advertizing make this stock worth your time andmoneyfor a longer term trade.
JACK has been a slow and steady wins the race typestock. Interestingly enough, the shareshave whether market volatility quite well, which is why I tend to favorthem.
Shares remain in a bullish channeland have strong supportaround the $39.00 level. Below that the50 and 200 day moving averages will also provide support at the $38.27and$30.68 areas as well.
Frankly, I would be concerned if JACKfell below its 50 daymoving average and remained below it for more than 3 days, as it hasn’tbeenthere since November of last year.
Shares are slightly overbought at themoment with much ofthe market, so wait for a pullback before entering. Shares tend to movebetween1 and 1.5% daily, so they are slightly less volatile than theS&P 500.
Look for the stock to break out ofits current channel to the upside andinto the $50 range over the coming months at which point I'd look totake profits.
I’d look to JACK versus theircompetition like Wendy’s WEN,Burger King BKW and even McDonald’s MCD.
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