Jack in the Box Should Spring to New Heights

by Serge Berger | August 8, 2014 7:55 am

Fast-food chain Jack in the Box (JACK[1]) 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[2]) and Yum Brands (YUM[3]), 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.

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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.

Click to Enlarge

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[5]. As of this writing, he did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/08/jack-in-the-box-jack-stock/

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