On Friday, Loop Capital adjusted its outlook on Jack in the Box (NASDAQ:JACK), reducing the stock's price target to $87 from the previous $118 while continuing to endorse the stock with a Buy rating. The revision follows the observation that the company's same-store sales are falling short of expectations in the current fiscal third quarter.
Loop Capital's analysis is based on recent checks with U.S. franchisees of Jack in the Box, which revealed a 1.5-2.0% decline in same-store sales during the first eight-plus weeks of the quarter. This downturn contrasts with the previously estimated flat growth for the full third quarter and misses the consensus estimate of a 0.2% decline.
The current decrease in same-store sales represents a 6.0-6.5% gain on a two-year stacked basis, which is slightly lower than the 6.8% two-year stack reported in the second quarter of 2024. Additionally, the implied three-year stacks for the quarter to date are between 5.0-5.5%, marginally below the 5.7% reported in the prior quarter.
Despite the lower same-store sales figures and the adjusted price target, Loop Capital maintains a positive outlook on Jack in the Box. The firm's decision to keep a Buy rating on the stock is based on a valuation of 10 times the projected FY24 Enterprise Value/EBITDA (EV/EBITDA). The updated price target reflects the latest financial trends and franchisee sales data impacting the fast-food chain's performance.
In other recent news, Jack in the Box Inc. has announced significant expansion plans in the Southeastern United States. The quick-service restaurant chain is set to open 15 new locations in Georgia, marking the company's first venture into the state. This follows a recent announcement of over 30 new commitments in Florida, with the company's growth strategy focusing on the Southeast.
Analysts have been monitoring these strategic developments closely. RBC Capital Markets and Wedbush Securities have both upgraded the company's stock to "Outperform", citing promising performance in new markets and the ability to meet growth and EBITDA targets. However, Barclays assigned an "Equal Weight" rating due to concerns over lower-than-expected comparable sales and a reduction in guidance for comparable sales and earnings.
Despite facing industry challenges, Jack in the Box is projected to drive same-store sales growth into 2025 through its expansion plans and menu innovations. The company's financial outlook suggests a positive trajectory in earnings per share over the next few years. However, analysts also acknowledge potential risks, including execution challenges with new initiatives and potential impacts from legislative changes.
InvestingPro Insights
As Jack in the Box (NASDAQ:JACK) navigates through a period of underwhelming same-store sales, the latest data from InvestingPro provides a broader perspective on the company's financial health. The market capitalization stands at a substantial $1.07 billion, with a P/E ratio of 9.62, indicating a potentially undervalued stock in comparison to earnings. Notably, the company has a consistent track record of dividend payments, having maintained them for 11 consecutive years, which could be a reassuring sign for income-focused investors, particularly with a dividend yield of 3.18% as of the last payment.
However, it's important to note that Jack in the Box's stock price is currently trading near its 52-week low, and it has experienced a significant decline over the last three months. This volatility is something potential investors should consider. For those looking for more comprehensive analysis and additional insights, there are over 7 InvestingPro Tips available, which can be a valuable resource in making informed decisions. For a deeper dive into Jack in the Box's financials and future prospects, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. These tips could provide further clarity on whether the current stock price reflects a buying opportunity or if caution is warranted given the recent downward revisions in earnings estimates by analysts.
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