Jack in the Box Earnings Preview: Flat EPS, Lower Revenue Expected

Jack in the Box (NYSE: JACK) is scheduled to report fiscal fourth-quarter 2011 results today, November 21, after the markets close. Investors will be looking for signs of a turnaround after the company missed earnings per share estimates in the past two quarters and revenue declined in the past three quarters. Investors also hope the quick-service restaurateur will not follow in the footsteps of competitor Wendy's (NYSE: WEN), which posted a wider net loss and missed revenue expectations last week.

The consensus forecast calls for Jack in the Box to report earnings of $0.40 per share, which would be the same as in the fourth quarter of last year. That EPS estimate is a penny lower than just 60 days ago. The forecast for full-year earnings calls for $1.53 per share, down from $1.59 a year ago. Note that Jack in the Box has fallen short of consensus estimates in three of the past five quarters.

Analysts also expect the company to report that fourth-quarter revenues decreased 12.7% from a year ago to $491.5 million, while full-year revenues total $2.2 billion, a 5.0% decline. Looking ahead to the current quarter, revenues are anticipated to be just 4.7% lower year over year.

The Company

The San Diego-based company operates and franchises more than 2,700 Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual dining restaurants in the United States. Jack in the Box was founded in 1951 and now has a market cap of $957.8 million.

During the three months that ended in September, the company saw one silver lining in its otherwise disappointing third-quarter results: same-store sales increased 4.7% due to ongoing efforts to enhance the Jack in the Box brand. More recently, Jack in the Box said eggnog and pumpkin pie shakes would be back for the holidays, and it added mini cookies to its menu.

Performance

The company has a long-term earnings per share growth forecast of 12.7%. The P/E ratio is lower than the industry average, while the PEG ratio is in line with the average. Analysts have a mean price target on the stock that is almost 13% higher than the current share price.

The share price has not recovered from the sell-off in August but has risen almost 9% in the past three months and is up about 13% from the 52-week low. It is above the 50-day moving average. Over the past six months, the stock has underperformed competitors Chipotle Mexican Grill (NYSE: CMG), Wendy's, but its performance was in line with Yum! Brands (NYSE: YUM) and better than the broader markets.

Action Items:

Bullish: Investors interested in exchange traded funds invested in Jack in the Box might want to consider the following trades:

• SPDR S&P 600 Small Cap Value ETF (NYSE: SLYV) is more than 21% higher than a recent 52-week low.
• iShares Morningstar Small Value Index (NYSE: JKL) is more than 20% higher than a recent 52-week low.
• PowerShares S&P SmallCap Consumer Discretionary (NASDAQ: PSCD) is about 19% higher than a recent 52-week low.

Bearish: Traders may want to consider these alternative positions:

• Chipotle Mexican Grill (NYSE: CMG) is more than 46% higher year to date.
• McDonald's (NYSE: MCD) is more than 23% higher year to date.

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