- Goldman Sachs sheds some more light on the Jackson Hewitt (NYSE:JTX) situation saying they believe that the stock's reaction to this negative news was overdone:
1) the DOJ did not sue Jackson Hewitt, only the franchisee;
2) firm reviewed the Jackson Hewitt franchisee contract, which establishes that franchisees are independent contractors, that the alleged fraudulent conduct would be in violation of this contract, that franchisees are responsible for hiring, training, and supervising their employees, and - most importantly - that the contract provides indemnification of Jackson Hewitt for conduct of the franchisee;
3) no one franchisee accounts for more than 2% of total revenues for Jackson Hewitt, and these 125 stores account for less than 2% of total stores; and (
4) the 2007 tax season is nearing its end, with the bulk of FY2007 revenues already accounted for.
GSCO believes that related business risk is low (less than 2% of revenues). It is their understanding that legal liability exists only if company employees were involved in the alleged conduct, knew about it, or benefited from it in some way. Firm's discussions with management suggest that this was not the case. Believe yesterday's weakness presents an immediate buying opportunity.
Notablecalls: I was too conservative on JTX few hrs ago, saying $27 was the level to buy. Was expecting at least some analysts to panic and downgrade the stock, providing a decent fill. No luck with that. First prints were around $28. Hope some of you had more conviction. Think the stock can hit $29.50 or even $30 early on, providing a quick scalp on the short side. After that, who knows.
1) the DOJ did not sue Jackson Hewitt, only the franchisee;
2) firm reviewed the Jackson Hewitt franchisee contract, which establishes that franchisees are independent contractors, that the alleged fraudulent conduct would be in violation of this contract, that franchisees are responsible for hiring, training, and supervising their employees, and - most importantly - that the contract provides indemnification of Jackson Hewitt for conduct of the franchisee;
3) no one franchisee accounts for more than 2% of total revenues for Jackson Hewitt, and these 125 stores account for less than 2% of total stores; and (
4) the 2007 tax season is nearing its end, with the bulk of FY2007 revenues already accounted for.
GSCO believes that related business risk is low (less than 2% of revenues). It is their understanding that legal liability exists only if company employees were involved in the alleged conduct, knew about it, or benefited from it in some way. Firm's discussions with management suggest that this was not the case. Believe yesterday's weakness presents an immediate buying opportunity.
Notablecalls: I was too conservative on JTX few hrs ago, saying $27 was the level to buy. Was expecting at least some analysts to panic and downgrade the stock, providing a decent fill. No luck with that. First prints were around $28. Hope some of you had more conviction. Think the stock can hit $29.50 or even $30 early on, providing a quick scalp on the short side. After that, who knows.
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