Jack In The Box Analyst Sees 'Encouraging' Sales Trends Improvements

Jack in the Box (NASDAQ: JACK) is beginning to come into the good graces of Wall Street analysts.

The Analyst

Morgan Stanley analyst John Glass reinstated an Equal-Weight rating on Jack in the Box with an $87 price target.

The Thesis

After escaping a potential PR crisis initiated by Kim Kardashian West on Monday, it appears that things are looking up for the fast-food restaurant.

Its recent sales trend improvements are "encouraging," but net unit growth — which has been flat for several years — will need to begin ramping soon to provide visibility on the chain's 2022 targets, Glass said in a Tuesday note. (See his track record here.) 

Some of the dynamics that have weighed on Jack in the Box's sales and development may be changing, the analyst said. 

“In particular, JACK's move toward bundled value offers has demonstrated some recent traction, with sales improvement noted above, but it's still early days, and franchisee resistance still exists." 

Some of the reasons behind Jack in the Box's lack of past unit growth are now behind it, as refranchising is now complete and franchisees no longer have the choice of growing by acquiring units, Glass said. 

Same-store sales and development need to work together to achieve the company’s longer-term goals of $4 billion in total system sales by 2022, the analyst said.  

The fast food chain is targeting a 3-4-percent compounded annual growth rate $300 million in EBITDA and $175 million in free cash flow, according to Morgan Stanley. 

The sell-side firm's forecasts are modestly lower than these targets, “as we have taken a more conservative view on unit development," Glass said. 

Price Action

Jack in the Box shares were trading up slightly at $82.05 at the time of publication Tuesday. 

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Public domain photo via Wikimedia.