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Jamba's Blender Turns Both Ways

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Analysts can't seem to agree on the direction that Jamba (NASDAQ: JMBA  ) will take this year. Shares of the 849-store smoothie chain fell last week after Wedbush downgraded Jamba from outperform to neutral. Wedbush also lowered its price target from $15 to $13 with the move.

The stock bounced back with a 5% pop yesterday after Dougherty moved to upgrade the stock. Dougherty is setting a price target of $14 as it boosts the stock's rating from neutral to buy.

The two analysts seem to be passing ships here, and only one can ultimately be right. Dougherty's previous calls have merely treaded water. It upgraded the stock 22 months ago when it was trading at a split-adjusted price of $10.10. It went on to downgrade the stock 19 months later after Jamba hosed down its outlook, a move that led to the stock plunging from $13.47 to $10.94. It was a profitable call, but it's a relative failure since it didn't beat the market.

Jamba's in the right place. Smoothies are big business, and Starbucks (NASDAQ: SBUX  ) and McDonald's (NYSE: MCD  ) wouldn't be arming its baristas and employees with blenders to make icy fruit beverages if that weren't the case. Smoothies have been a means to different ends at the two giants. Starbucks began offering smoothies to give kids and non-java-junkie adults more menu choices. McDonald's rolled out smoothies to drum up stronger beverage sales. Why sell a $1 soda when a $2.50 McCafe smoothie can do the trick?

Starbucks and McDonald's embracing the market didn't seem to make a dent on Jamba. If anything, it may have initially helped to educate the market. Until posting negative comps in its latest quarter, Jamba had rattled off two years of positive quarterly comps. 

Jamba's never been one to rest on its blended laurels. It's perpetually tweaking its menu, and its latest initiatives involve more fresh juice and meal offerings. Another major component of the Jamba strategy has been its JambaGo machines, which crank out smoothies for commissaries and other institutional venues. JambaGo's biggest achievement to date came three months ago when Target struck a deal to install the smoothie machines at 1,000 of its Target cafes across the country.

Target's reputation naturally took a big hit with the hacker scare this holiday shopping season, but having the cheap-chic discounter on board will make it easier to woo other food-serving establishments looking for an easy and economical way to offer premium smoothies. 

Against this favorable development, you do have a company that has come up short when pitted against Wall Street's profit expectations in each of the past three quarters. It has to prove that it can turn that around, and getting comps to bounce back will also be necessary if the bulls win this round.

The blender really does whir in both directions here, but the long-term potential of Jamba in an improving economy that finds customers able to shell out $4 to $5 for a better-quality beverage than what they can get at Starbucks or McDonald's can't be ignored. 

I'm sorry, Wedbush, but my money's on Dougherty getting it right this time.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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Related Tickers

9/1/2015 3:59 PM
JMBA $13.89 Up +0.07 +0.00%
Jamba, Inc. CAPS Rating: **
MCD $93.47 Down -1.55 +0.00%
McDonald's CAPS Rating: ***
SBUX $53.50 Down -1.21 +0.00%
Starbucks CAPS Rating: ****