UPDATE 1-Jackson Hewitt shares jump on positive outlook

* Shares up as much as 22 pct

* RAL funding still major concern - analysts (Adds analyst comments, background; updates stock activity)

BANGALORE May 28 (Reuters) - Shares of Jackson Hewitt Tax Service Inc JTX.N shot up as much as 22 percent Friday, a day after the troubled tax-preparer forecast 2010 revenue above analysts' estimates and said it sees "modestly positive" earnings.

"It's a little positive and there's probably some short covering in here. I don't think there's as much downside risk to the stock." analyst David Burtzlaff of Stephens Inc said by phone.

Short investors hope to profit from a decline in a stock by borrowing shares and selling them, with the expectation they will be able to buy them back at a lower price, pocketing the difference.

However, if the shares rise, investors may be forced to buy them back at a higher price.

Analyst Burtzlaff said there are still issues to be addressed, with the major one being the refund anticipating loans (RALs) funding.

Tax-refund loans, also known as RALs, typically last seven to 14 days until taxpayers receive their refunds from the U.S. Internal Revenue Service (IRS).

"We don't expect material net income for the foreseeable future," Oppenheimer & Co analyst Scott Schneeberger said.

The company now expects fiscal 2010 revenue of $211 million to $214 million, while analysts were expecting revenue of $193.1 million for the year.

The company also witnessed a narrower-than-expected drop in prepared tax-returns of 14 percent and expects average revenue per return to meet the low end of its previous outlook of 1 percent growth.

"They are down 14 percent, after being down 13-14 percent last year and 7 percent a year before. Those are terrible results, it doesn't matter that they are little better than what they expected," Burtzlaff said.

The Parsippany, New Jersey-based tax-preparer, which has been trying to secure 100 percent funding for its RAL products, earlier in May said it is optimistic about securing 100 percent funding for RALs.

After JPMorgan Chase & Co (JPM.N) pulled out of offering independent U.S. tax preparers financing for tax-refund loans, H&R Block (HRB.N), which has an agreement with HSBC Holdings (HSBA.L) for the same, was left as the only big player to offer 100 percent RALs.

"Securing refund anticipation loan funding, maintaining the Wal-Mart partnership, and non-detrimental IRS regulations are key to JTX's survival," the analyst said.

Last December, Jackson Hewitt had said it expected to operate in 1,800 to 1,900 Wal-Mart stores for the 2010 tax season.

Shares of the company were up about 19 percent at $1.91 Friday afternoon on the New York Stock Exchange. They touched a high of $1.97 earlier in the day. (Reporting by Abhinav Sharma in Bangalore; Editing by Vyas Mohan and Maju Samuel)