A Tasty Stock

Turnaround plays are nice. What is nicer is when a turnaround play turns into a growth story.  Jamba Juice (NASDAQ – JMBA - $2.55) is one such situation.

While the JMBA products are great the stock hasn’t historically been a world-beater.  However, that has changed dramatically in recent months.  For starters, the Company isn’t just a fruit smoothie beverage company anymore. With nearly 800 store locations, Jamba Juice is a leading restaurant retailer in the healthy lifestyle category.  The stores offer a variety of food and beverage offerings, including great tasting fruit smoothies, fresh squeezed juices, and special iced and hot teas, oatmeal made with organic steel cut oats, wraps, salads, sandwiches, California Flatbreads, and a variety of baked goods and snacks.

The menu alone isn’t the reason why the Company has gone from a turnaround story to a growth story, although that has aided its efforts in increasing revenue in its stores throughout the day.  JMBA has undertaken a huge marketing shift which has resulted in a high brand awareness and customer affinity, aided by a number of royalty and product license relationships which make products available in over 50,000 retail points of distribution.  Management believes that by 2015, fully $1 billion in revenue can be generated via sales of its products via stores and through its licensee-partners.

The proof is in the numbers. For 1Q12 comparable store sales jumped to 12.7% versus 2.2% and JMBA’s adjusted operating margin more than doubled.  Labor costs and cost of sales have also decreased while quality is at an all-time high. While the Company enjoys huge store revenue growth and royalty revenue, its new JambaGO kiosk for college campuses and entertainment centers is catching on in the U.S. It is estimated as many as 500 will be deployed by year-end, up from 100 today.

The Street is not anticipating huge top-line growth for 2012 but the current consensus forecast calls for $234M in revenue and $0.04 this year, up from $226M and a loss of $0.16 in 2011.  Next year’s projections include revenue of $251M and EPS of $0.10.  We would not be surprised to see forecasts raised for both years as JMBA clearly has the wind at its back.  While much of the stock’s gains have already occurred, a great deal of the risk is gone.  As a result, we believe that at a current multiple of 25x FY13 EPS and less than 1x FY13 revenue, 25% or more in gains is in the cards, even without an upward revision in estimates.

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