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Scrap Jack in the Box, Consider These 5 Stocks Instead

Rajashree Bhattacharyya

After being plagued with comps slump for seven consecutive quarters, the U.S. restaurant industry made a comeback in the fourth quarter of 2017. Ever since then the industry has been showing signs of slow but steady recovery. According to TDn2K’s The Restaurant Industry Snapshot, the U.S. restaurant industry is likely to witness sales recovery in 2019 as well.

Notably, the industry’s growth is expected to be supported by increased consumer spending and restaurateurs’ focus on digital innovation. According to an article by Restaurant Business, the fast-casual restaurant space is likely to record sales growth of 8.3% in 2019 compared with 8% in 2018. Casual dining is expected to experience a gain of 3.4% in sales in the current year, up from the past year’s 3.2%. Fine-dining restaurants will also see a rise of 5.2%, compared with 5% growth in 2018.

However, we should bear in mind that the industry is highly dependent on consumer discretionary spending. Consumers’ capacity to spend largely depends on the overall macro-economic scenario. Although higher disposable income and increased wages are favoring the industry right now, it can change with the slightest disruption in the economy. Consequently, companies which have not been adapting pragmatic use of advanced technologies and innovation across value chains are plagued with intense competition and are likely to fade out.

Jack in the Box Inc. JACK is one stock that has been struggling with decelerating comps growth, rising costs and stiff competition from other highly innovative fast casual restaurants.

Should You Dump Jack in the Box?

The answer is yes. Investors are advised to dump the company’s shares right now instead of waiting for a miracle in the near term. Jack in the Box commenced first-quarter fiscal 2019 on a disappointing note. Comps for the first seven weeks of the quarter decreased in the range of 1-2% owing to the Ribeye Burger’s dismal performance. For fiscal 2019, the company expects comps to be in the range of flat to up 2%.

Meanwhile, the company has been struggling with wage increases nationwide, which is negatively impacting operational results. Further, costs related to marketing initiatives, unit expansion and opening catering call centers are expected to keep profits under pressure.

If this wasn’t enough, Jack in the Box also has limited international presence that makes it susceptible to intense competition. While several other restaurateurs including Yum! Brands YUM and McDonald’s MCD have opened their outlets in the emerging markets; Jack in the Box seems to be slow on this front. Moreover, the company is experiencing increased competitive pressure on breakfast and lunch day parts as many other restaurateurs have introduced aggressive value offers.

Resultantly, shares of this Zacks Rank #5 (Strong Sell) company have lost 16.6% in the past year, against the Zacks Retail – Restaurants industry’s growth of 1.9%. Meanwhile, over the past 60 days, the Zacks Consensus Estimate for fiscal 2019 earnings have been revised downward by 5%. Further, the Zacks Consensus Estimate pegs current-year revenues at $769.8 million, suggesting a 11.5% decline from fiscal 2018. Jack in the Box has a VGM Score of C suggesting that the company is likely to underperform its peers.


With its share price plunging and estimates witnessing downward revisions, it would not be viable to keep this stock in your portfolio, at least for the time being.

Restaurants That Will Serve Treats in 2019: 5 Picks

The primary growth of restaurateurs in 2019 is likely to stem from an increasing influence of digital and delivery sales. With the ever-growing presence of Internet and smartphones, analysts expect 25% of all restaurant sales to be generated from digital ordering and delivery over the next four years, per a report by Forbes. Moreover, the overall economic scenario is conducive for growth of restaurant stocks.

With the help of the Zacks Stock Screener, we have zeroed in on five restaurants stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These stocks with positive earnings estimate revisions have the potential to make you forget Jack in the Box. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Habit Restaurants, Inc. HABT a burger-centric fast casual restaurant company. Earnings estimates for 2019 have increased 25% over the past two months to 10 cents. The restaurant sports a Zacks Rank #1.

Cracker Barrel Old Country Store, Inc. CBRL is engaged in ownership and operation of full-service restaurants with retail stores in the same units. Over the past two months, earnings estimates for fiscal 2019 has moved up 1.4%. The Zacks Consensus Estimate for current year earnings is pegged at $8.98, reflecting year-over-year growth of 1.2%. The company carries a Zacks Rank #2.

Domino's Pizza, Inc. DPZ carries a Zacks Rank #2. The consensus estimate for 2019 earnings is $9.39, suggesting growth of 11.1% from the year-ago level. Further, estimates have moved upward by 0.1% over the last 60 days.

BJ's Restaurants, Inc. BJRI, a leading full-service restaurant, carries a Zacks Rank #2. Earnings estimates for 2019 have increased 0.4% over the past two months to $2.42. This suggests that earnings per share will improve 3.2% year over year in 2019.

Darden Restaurants, Inc. DRI, a Zacks Rank #2 company, banks on various sales-bolstering initiatives and cost-saving efforts to drive growth. The Zacks Consensus Estimate for fiscal 2019 earnings are expected to grow 17.9% year over year. Moreover, estimates have moved northward by 1.2% over the past 60 days.

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Jack In The Box Inc. (JACK) : Free Stock Analysis Report
 
McDonald's Corporation (MCD) : Free Stock Analysis Report
 
Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
 
Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
 
The Habit Restaurants, Inc. (HABT) : Free Stock Analysis Report
 
BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
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