Zacks Investment Research raised Jack in the Box Inc. (JACK) to a Zacks Rank #1 (Strong Buy) on Oct 7, 2014, on expectations of bullish third-quarter results, likely to be reported next month.
Why the Upgrade?
After posting strong earnings in the second quarter that beat the Zacks Consensus Estimate, the company is set to report strong third-quarter earnings as well. The company’s earnings were primarily driven by the stellar performance of its fast-casual Mexican chain, Qdoba Mexican Grill.
Qdoba Mexican Grill was the highlight in the last reported quarter of Jack in the Box. Comps at Qdoba grew a robust 7%, and we believe that the upside will continue in the near term. Mexican-inspired quick food seems to be popular in today's fast-food landscape and Qdoba is capitalizing on this trend.
We also commend Jack in the Box’s endeavors to expand its Qdoba chain. In the last reported quarter, the business closed down 62 Qdoba locations in weaker markets. This is good news for the chain, because fewer resources are easier to manage and will enable Qdoba to make changes in its product line and operations more quickly. Going forward, Jack in the Box guided a 3%–4% increase in full-year same-store sales for Qdoba against a 2%–3% rise projected earlier.
In our view, Qdoba Mexican Grill is poised to help Jack in the Box, at present focused on menu innovation and opportunistic expansion, fare even better in the upcoming period.
Other Stocks to Consider
Other players in the same sector that look attractive at current levels include Jamba, Inc. (JMBA), DineEquity, Inc. (DIN) and Ruby Tuesday, Inc. (RT). All these stocks sport a Zack Rank #1 (Strong Buy).
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