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Jack in the Box (JACK) Eyes Long-Term Growth Amid Risks


On Nov 25, we issued an updated research report on leading quick-service hamburger restaurant chain Jack in the Box Inc. JACK.

Jack in the Box operates and franchises through the namesake quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants.

Recently, the company reported better-than-expected fourth-quarter fiscal 2016 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Going forward, Jack in the Box sees significant growth opportunities for both its brands. The company makes regular menu innovations and provides limited period offers (LPO) at both its flagship restaurants to drive long-term customer loyalty.

Jack in the Box’s premium and value offerings along with increased focus on breakfast menu to combat competition bode well. Meanwhile, apart from menu innovation and remodeling efforts, the company expects catering, marketing initiatives and delivery to boost comps at the Qdoba brand.

Qdoba is also developing a mobile app which will enable online ordering and mobile payment. The company is also redesigning its affinity program to bring back guests more often and to provide them with better control over reward points. Both products are expected to be rolled out in fiscal 2017.

Meanwhile, Jack in the Box restaurants are currently 82% franchised. The company plans to increase its franchise restaurants to around 90% by 2018. We believe, franchising a large chunk of its system will lower general and administrative expenses, and thereby boost earnings. Notably, the company believes that the majority of Jack in the Box new unit growth will be through franchise restaurants.

However, a soft consumer spending environment in the U.S. restaurant space, which is leading to decelerating comps growth, remains a major cause of concern as it may limit revenue growth at the company.

Moreover, the company’s limited international presence along with costs related to increased marketing initiatives remain as headwinds.

Zacks Rank & Stocks to Consider

Jack in the Box has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Domino's Pizza, Inc. DPZ, McDonald's Corp. MCD and Papa John’s International, Inc. PZZA. While Domino’s sports a Zacks Rank #1 (Strong Buy), Darden and Papa John’s carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Domino’s 2016 earnings moved up 2.7% over the last 60 days. For full-year 2016, EPS is expected to improve 23.1%.

The Zacks Consensus Estimate for McDonald's 2016 earnings climbed nearly 2% over the last 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.16%.

Papa John’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, EPS is expected to grow 19.9%.

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