Jack In the Box and the Case For a 30% Rally
While they managed to catch the initial wave of market optimism that swept across equities in November and December, shares of Jack In the Box Inc. (NASDAQ: JACK) have been on the back foot since January. They’re currently down more than 10% from the peak of that rally as the stock’s multi-year downtrend tries once again to assert itself.
It will be a disappointing turn of events for investors, who’ve had to watch the likes of McDonald’s Corporation (NYSE: MCD) and Chipotle Mexican Grill, Inc. (NYSE: CMG) soar to fresh all-time highs in recent weeks. For context, Jack In The Box shares are currently back trading at the same level they were at in 2014.
Recent Headwinds
Much of the negative pressure on shares comes from the weaker-than-expected growth signs, as shared in their earnings report last month. They missed analyst expectations on their earnings print, which is never a good sign, while revenue contracted more than 7% year on year, when there are so many equities out there experiencing the opposite right now, its understandable that many investors would want to throw in the towel.
But according to one analyst team at least, now’s not the time to walk away from Jack In The Box, and if anything, it’s time to start getting excited. Such was the sentiment from the Wedbush team who only yesterday upgraded their rating on Jack In The Box shares from Neutral to Outperform, while boosting their price target up to $88.
The team there feels the market is taking an overly pessimistic view of the company’s growth prospects, and the recent divergence in share performance from the rest of the market has opened up a solid entry opportunity. Their increased price target, with its suggested 20% upside, is a testament to this alone. They’re also bullish on the company’s valuation relative to its peers. This is seen in what they called a “45% discount to franchised quick service restaurant peers”, and it also materializes in the company’s price-to-earnings (PE) ratio. At just 13, it compares very favorably to McDonald’s 24 and to Chipotle’s 62.
Considering a Position
It was an interesting stance to take, but they’re not the first to come out with the bullish stance since the company’s most recent results. In the days following last month’s release, the Oppenheimer team reiterated their Outperform rating on Jack In The Box stock, along with their $98 price target. With shares having slid considerably in the weeks since, that target, with its current projected upside of some 30%, has only become more attractive.
For those of us considering getting involved, however, it is worth noting that Jack In The Box has an unfortunate history of underperforming its peers. The fact that its shares are trading at the same prices they were a decade ago isn’t exactly inspiring, nor is the fact the company wasn’t able even to meet analyst expectations in its most recent earnings report.
Weighing up an Entry
But if yesterday’s Wedbush report is to be believed, the recent bout of soft trading has become overdone, and Jack In The Box shares are due a bounce. Investors should look for shares to continue consolidating in the low $70s as they look to form a near-term uptrend from last month’s low of around $67.
Technically, the fact they’ve managed to tread water above $72 for the past fortnight is bullish, as it’s been forming a solid line of support from which to form a move north. Holding this will be crucial if they’re to have any hope of staging a comeback in the coming weeks and getting towards Wedbush’s target of $88 or even Oppenheimer’s at $98.
Source MarketBeat
