Jack In The Box Management Indicates Buybacks In The Future, Baird Likes Risk/Reward

Following Jack in the Box Inc. JACK’s investor presentation on Tuesday, Baird analysts have decided to reiterate an Outperform rating on the stock, boosting their price target by $10, to $105.

According to the firm’s report, the management team’s commentary reinforced the experts’ view that the company’s one-year-out risk/reward profile remains very attractive. And, even though Baird analysts “acknowledge some risk related to the near-term comps trajectory,” they see potential for stronger momentum to arise starting fiscal 2017, and believe “any short-term noise on comp trends ultimately will be overshadowed by the significant positives related to the planned transition to a more highly franchised business model.”

Among the elements highlighted in the research note were Jack in the Box’s plans to return capital to stockholders. In the conference presentation, management suggested that the transition “to a targeted debt-to-EBITDA ratio of at least 4X (vs. 2.9X after FQ2-16; proceeds to fund buybacks) could happen sooner rather than later, given the current low interest rate environment and the company's view that the stock is trading at an attractive valuation.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above