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Qualcomm and Jack in the Box struggle to boost stock prices

San Diego giants sell well below their highs

All-day breakfast at McDonald’s started in October 2015
  • All-day breakfast at McDonald’s started in October 2015

Stocks of two of San Diego’s most-admired companies have dropped sharply from their all-time highs around $100. One, Qualcomm, dropped around 90 percent before recovering, but the plunge took place long ago, in the early part of the century, when techs plummeted from insane levels. Still, it is down around 50 percent from that high.

A Jack in the Box ad from nine years ago

A Jack in the Box ad from nine years ago

The other company, Jack in the Box, lost a third of its value from last summer to the present.

Both have been clawing their way back, but could stumble. (For example, Qualcomm supplies chips for Apple’s iPhone, but it appears that Intel may get some of that business; also, for the first time, Apple’s iPhone sales are falling.) Most analysts don’t expect Jack or Qualcomm to leap back to their highs anytime soon, but these stocks might be tempting for patient investors because both companies have important assets.

On August 5 of last year, Jack in the Box stock hit $98.26, the all-time high. At the time, Jack’s sales and earnings were riding high. But as performance slowed sharply, the stock drifted down into the $60s.

Qualcomm, on the other hand, got to $100 when tech stocks were ridiculously priced at the beginning of the century. Qualcomm crashed when other tech stocks plunged by 80 percent in the early 2000s. (Qualcomm’s all-time high is $100, but that’s only because the stock has been split several times.)

Qualcomm’s business with Apple may get chomped into by Intel.

Qualcomm’s business with Apple may get chomped into by Intel.

On the first trading day of the year 2000, an analyst predicted the stock would reach $1000. It immediately soared. Adjusted for subsequent splits, Qualcomm closed 1999 at $88.06 and on the next day of trading zoomed to the split-adjusted $100. That was a heckuva ride in a short period of time. Then it plummeted with other techs and got as low as $11.61 in 2002 before rebounding. It’s now in the 50-dollar range.

Jack in the Box, once named Foodmaker, has fast-food outlets throughout the West but doesn’t have the marketing muscle of McDonald’s, which peddles burgers worldwide.

For 20 years, Jack has sold its breakfast products all day long. In October of last year, McDonald’s decided it would do the same. On April 22, McDonald’s announced soaring earnings. One of the major reasons: all-day breakfasts.

“As for McDonald’s, it tends to trigger a lot of attention with every initiative, big or small,” says Brian Luscomb, Jack’s vice president of communications and government affairs. “Plus it invested a lot in rolling out its all-day breakfast.” In short, McDonald’s knows how to make noise.

In February, Jack reported a very disappointing plunge in earnings. Chief executive Leonard (Lenny) Comma said that Jack was not about to cheapen its products. It has been emphasizing quality and not cutting prices. “You’ve seen us move away from heavy discounting and heavy promotion of our value offerings, as we focused on improving the quality of our burgers, drinks, and fries,” he told analysts. He allowed that Jack “felt the impact of McDonald’s all-day breakfast, primarily between the hours of 10:30 a.m. to noon.”

Jack also has a string of Qdoba Mexican Grill restaurants. Its sales have been slowing, too. Some thought Qdoba business would pick up when Chipotle Mexican Grill, once the most rapidly growing fast-food chain in the nation, got hit with an E.coli outbreak (as Jack in the Box had been in the 1990s). Chipotle is eating big losses as it tries to woo the customers back. Comma said in February that Qdoba has not been picking up a lot of business as Chipotle strives to recover.

Motley Fool says Jack shares are “incredibly cheap.” Wall Street’s Morgan Stanley says the shares can rise 40 percent. But others think Jack’s recovery will be a slow, painful one.

In April, Apple revealed that its quarterly iPhone sales dropped for the first time since it launched the smartphone in 2007. Overall sales and profits dropped, too. Apple may begin using some non-Qualcomm chips in its smartphones. Earlier, Qualcomm had lost some Samsung business. But Brian Colello of Morningstar says that if Qualcomm ends up with only 75 percent of Apple’s iPhone business, instead of 100 percent, it will still be doing very well, even in the teeth of a decline in iPhone revenue.

Evan Niu of the Motley Fool warns, “For years, Intel has been trying its darnedest to win back a spot in Apple’s iPhone.”

Qualcomm’s chief executive Steve Mollenkopf basically gave it away by saying at a meeting that for planning purposes, analysts should factor in “a range of second-sourcing assumptions at our large customers.” Bingo. Analysts assumed Intel would be grabbing some of Qualcomm’s business.

Bottom line: the smartphone market is weakening, and Qualcomm is getting less of Apple’s iPhone business and has lost some of the Samsung smartphone market.

Although Qualcomm’s last quarterly earnings report was well below the same quarter of the prior year, the company beat analysts’ expectations. Qualcomm stock didn’t crater when Apple revealed its bad news. Although the company is losing some business, it is still doing very well.

The company’s licensing business, while holding up nicely, does face some regulatory scrutiny in Taiwan, South Korea, and the United States. It still has collection issues in China, according to Morningstar.

Michael McConnell of Pacific Crest Securities predicts that Qualcomm will lose 20 percent to 30 percent of its share of the new Apple iPhone model. That will knock $600 million to $900 million off Qualcomm’s revenue, says McConnell. He still likes Qualcomm stock but doesn’t think it will climb as high as he once did.

Colello of Morningstar thinks Qualcomm will continue to have 75 percent of Apple’s iPhone chip business.

McConnell thinks Qualcomm stock can climb to $61. Colello says $68 is more like it. Generally, analysts think Qualcomm stock has been belted too hard and it can get back into the $60s, but nobody is thinking about $100 anytime soon.

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Comments

All of this couldn't happen to a better or more deserving pair of local corporations. Both suffer from swelled heads, and both are ready for a fall. I find it very hard to believe that JIB was setting stock price records just last year. Their offerings are mundane, generally tasteless, and if you play the game, cheap. Otherwise you get overpriced products that are perpetually in a state of experimentation. Those don't have much character either. If McDonald's makes a move, there's a strong notion that the move is in the wrong direction. After the all-day breakfast initiative, many of the franchisees were howling that they disrupted the usual flow in the kitchen, and were costing them real profit dollars. Gosh, it is possible that you cannot offer everything to everyone and still be profitable?

The parallels between the two unrelated corporations are uncanny. Both had their glory days--now long gone--and are facing an environment of dull and repeated products where the public would prefer something else.

Visduh: I think Jack in the Box consistently comes up with more creative products than its competitors. I also believe that while Qualcomm will lose some important smartphone business, it still will be doing well with the large market share it has. Best, Don Bauder

Don, Intel announced last month they are exiting the mobile business. Lower sales of iPhones could mean a greater share for android based phones where Qualcomm has better margins.

hillclimber: My point is that Qualcomm could lose some market share, but still thrive. Best, Don Bauder

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