Baird Sees 24% Upside In Jack In The Box

“With easier comparisons ahead and with key value-creating financial strategies on track,” Baird’s David E. Tarantino believes there is opportunity for the valuation metrics of Jack in the Box Inc. JACK to expand, leading the risk/reward on the stock being attractive at the current levels.

Tarantino maintains an Outperform rating on the company, while raising the price target from $105 to $120.

Beat Quarter

Jack in the Box reported robust FQ3 results, with signs of improvement in the comp momentum and strong margin performance.

The EPS for the quarter beat the consensus and the estimate, reflected better-than-expected comps, margin performance and a positive tax rate variance.

Related Link: Fast Food Tops Fast-Casual Traffic In 2016

“After starting FQ3 in negative territory, comps for both brands accelerated in the final eight weeks of the quarter, indicating healthy improvement on a relative basis given that industry trends appeared to decelerate during this same period,” Tarantino mentioned.

The company guided to FQ4 comps of 1–2 percent for both its brands, attributing the improved trend to internal drivers, which the analyst believes could support even strong momentum against easier comps in FY17.

Guidance Raised

Management also raised the 2016 guidance, following the beat FQ3 results, with the full-year EPS guidance being raised from $3.50–$3.63 to $3.65–$3.75.

“JACK noted good early progress on previously announced financial strategies, including efforts to cut G&A, to refranchise company-operated JIB units, and to return substantial amounts of cash to shareholders through buybacks,” the analyst added.

The EPS estimates for F2016 and F2017 have been raised.

Full ratings data available on Benzinga Pro.