Leading The Pack On JACK

HEDGEYE ANALYST:

Howard Penney, Managing Director of Restaurants (@HedgeyeHWP)

 

 

In early May, we put out a note indicating that the time was right to get bullish on Jack in the Box (JACK). We went contrarian to the Street consensus that current sales trends would not strengthen quarter-over-quarter. Jack’s core business along with its fast growing Qdoba brand is something we found attractive at the time and still do. The company will soon wrap up its remodeling and rebranding phase which will relieve pressure on capital expenditures. This, combined with better comps going forward bodes well for top line growth. Over our long-term TAIL duration, we see as much as 50% upside in the stock.

 

Leading The Pack On JACK - JACK packonbull

 

Here is our original thesis from May 5th highlighting our durations for JACK:

 

TRADE (Duration = 3 weeks or less)

2QFY12 earnings are expected to be released on the 15th of May. Our view is that the Street is overly bearish on the company’s top-line trends, currently expecting a slowdown in two-year average trends.  We believe that the current sales trends at Jack in the Box strengthened quarter-over-quarter.

 

TREND (Duration = 3 months or more)

With the benefits of the remodel program only impacting the company’s financials now and the costs (capex) fading, we are positive on the company’s cash generation prospects.  Easier comps going forward should also help bring the top line higher.

 

TAIL (Duration = 3 years or less)

JACK trades at a discount to SONC (7.3x EV/EBITDA) and WEN (8.2x). We believe that JACK should trade at a premium to SONC and in line with WEN.  Over the next three years, we see as much as $8 in upside to JACK. 

 

So when we got bullish on May 5, 2012, the stock was trading at $23 a share. As of yesterday, the stock was at $27. That’s something to get excited about. The Street (Old Wall) is now following our lead and getting bullish as well. This company’s got legs and plenty of room (and time) to grow. 


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more