Baird Upgrades Jack in the Box To Outperform, $95 TP

Baird has upgraded Jack in the Box Inc. (NASDAQ: JACK) to Outperform after the company's "positive" investor meeting suggests that the stock has "plenty of room to run over the next 12-24 months."The stock's upside potential comes from its transition to a leaner, more highly franchised business model yielding consistent operating results, a higher ROIC, and healthy returns of capital to shareholders."We acknowledge risks related to near-term comps assumptions (particularly for FQ4), but we believe JACK has a solid game plan to spur better momentum in F2017 and beyond, and we think any short-term noise on comp trends ultimately will be overshadowed by the positives related to the transition to a more highly franchised business model," analyst David Tarantino wrote in a note.The company unveiled plans to increase the franchised mix for Jack in the Box (JIB) to as much as 95 percent (previously targeted 90 percent plus) by F2018 while correspondingly reducing G&A to 2.0-2.5 percent of system sales (well below prior 3.0 percent indication).The company also raised the debt-to-EBITDA leverage ratio to at least 4X from 2.9X."The combined annualized EPS accretion from these moves could approach $1 (including impact of additional leverage/buybacks)," Tarantino said.JACK expects to achieve mid-teens annual EPS increases in F2018-2020, supported by growth for JIB (comps +2.5-3.5 percent, system units +1-2 percent), Qdoba (comps +4-5 percent, units +10-12 percent), and buybacks.In the near-term, the company is confident that planned JIB initiatives (including "Burger X" LTO in FQ4) can help to spur better momentum exiting fiscal 2016. "While we still see some short-term risk, we think ongoing structural improvements ultimately will lead to better momentum as comparisons ease in F2017," Tarantino noted. The analyst also raised F2017 EPS estimate by $0.40 to $4.40, while consensus is at $4.00. The analyst also raised the price target to $95 from $80.At the time of writing, shares of JACK rose 5.82 percent to $83.65.