Fast-food chain Jack in the Box (JACK) impressed Wall Street on Thursday with its fiscal third-quarter earnings. Jack in the Box showed robust earnings growth and lifted its outlook for the full year, all of which led to a meaningful rally in JACK stock on a huge burst in volume.
Active investors: Focus on the long side of the stock.
Jack in the Box’s earnings came to 65 cents, easily topping analyst estimates of 57 cents and representing 60% year-over-year improvement. That came on revenues that actually declined 1% to $348.5 million, but that figure was still enough to top analyst expectations of $343.27 million.
Outlook also impressed, as JACK raised full-year 2014 earnings guidance from a range of $2.25-$2.35 per share to a range of $2.38-$2.45.
All this led JACK stock to rally just more than 10% Thursday, bringing shares back within just $2 of their all-time highs reached in mid-March. This post-earnings rally in JACK stock comes in stark contrast to the post earnings slumps in competitor stocks like McDonald’s (MCD) and Yum Brands (YUM), thus showing great relative strength.
On the back of the good earnings report, Wunderlich Securities reiterated its “buy” rating on JACK stock as well as a $70 price target, citing best-in-class EPS growth.
JACK Stock Charts
On the weekly chart, note that after a steep incline in 2012 and 2013, JACK stock ultimately leaped vertically in the first part of 2014 until finally topping in mid-March. After correcting about 15%, the stock again found support in late April and began to climb. Through a multimonth perspective, however, JACK stock has mostly consolidated its 2013 gains in a constructive fashion, and with Thursday’s big-volume rally, shares marginally broke out of the wedge formation.
On the daily chart below, we see that Thursday’s rally came on a big up-gap and on volume of more than 2 million shares, which compares favorably to the roughly 400,000 shares that the stock usually trades on any given day.
JACK stock on Thursday also jumped right back above its 50- and 100-day simple moving averages (yellow and blue lines, respectively), and scored a marginal break past the March diagonal resistance line and the early April lateral resistance line.
Considering the big-volume post-earnings up-gap in JACK stock — and that the broader stock market increasingly looks ripe for an oversold bounce to lower highs — JACK could offer active investors and traders an opportunity to hop on the upside momentum for a move into the mid-$60s for now.
As usual, for risk management purposes, any quick reversal of Thursday’s gains would nullify the bullish setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.