Goldman Sachs’ Karen Holthouse believes that Taco Bell’s focus on entry level value and growing its breakfast business crates near-term risks for Jack in the Box Inc.
Holthouse initiated coverage of Jack in the Box with a Sell rating and price target of $88.
“Taco Bell’s emphasis on $1 price points (an entry point a burger company would struggle to replicate) and the breakfast business both present traffic risks,” the analyst explained, while expressing concern regarding Jack in the Box’s comp trends, given the geographical and Millennial positioning overlap.
At the same time, Holthouse expects the macro tailwinds in California to begin dissipating, given the rising unemployment, which could potentially offset the benefit of wage hikes.
“We also believe Qdoba could continue to struggle in an increasingly competitive fast casual field,” the analyst stated, while adding that “our propriety analysis of customer reviews suggests it resumed losing ground after an initial “all-in” pricing benefit.”
Consumer reviews and the survey data suggest that the benefit from “all-in” pricing have already started to fade, while platform introduction are being seen as creating complexity issues.
“Valuation suggests room for compression if comps disappoint and, unlike other refranchising stories, Qdoba capex prevents a compelling out-year FCF story,” Holthouse added.
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|Oct 2016||Goldman Sachs||Initiates Coverage On||Sell|
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