Jack In The Box Reports This Week: Here's Why Oppenheimer Is Bullish

In a report published Tuesday, Oppenheimer analyst Brian Bittner reiterated an Outperform rating on shares of Jack in the Box Inc. JACK with an unchanged $99 price target ahead of the company's third-quarter results scheduled for Wednesday.

The Estimize community (based on 13 estimates) is expecting the company to earn $0.73 per share in the quarter on revenue of $358.55 million, roughly in-line with the Wall Street consensus estimate looking for the company to earn $0.73 per share on revenue of $358.81 million.

Bittner noted that near-term comp estimates appear "safe" as quick service restaurant trends (ex-McDonald's) accelerated in JITB's third quarter (April to June) while the Street is assuming a 1 percent traffic decline at Qdoba, similar to last quarter.

While skepticism in shares is "above-average" (due to restructuring earnings tailwinds, traffic concerns, comp momentum concerns), the analyst continue to see an earnings outperformance path relative to the Street's expectations through 2016 as the company's fundamental setup and above-average operating leverage "remain under-appreciated."

Looking forward, Bittner noted there could be upside in margins as the company will likely end 2015 with a rate near 20 percent, but stores with $150,000 higher sales volumes than base generate mid-20s margins, implying an "attractive" upside leverage. The analyst added that every 100 basis points of JITB and Qdoba comp could drive EPS of $0.10 and $0.04, respectively.

Bittner also suggested that the company's free cash flow yield of 4.5 percent should allow management to repurchase shares "at a very healthy clip" and dividends to "grow nicely."

The analyst finally noted that shares are trading at 12.8x EBITDA – a multiple that "isn't extremely cheap" but does not give credit for the company's "relative fundamental story." While earnings upside and multiple expansions are "less obvious" versus prior years, its visibility is "high enough" for investors to "remain excited" over the next 12 months.