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Takeaway: $JACK is one of our better long-term TAIL ideas. The stock corrected, but held its TREND line, and our thesis is still intact.

We just added Jack in the Box (JACK) to our Real-Time Positions as the share price is at the low end of Keith’s immediate term TRADE risk range.  We like the stock from a fundamental perspective and stand by our Sum of the Parts analysis which suggests long term upside of 50%. For our most recent note on JACK, click here.

Fundamental View

Jack in the Box has been a strong performer within QSR over the past year, outperforming the S&P 500 by over 10%.  We believe that there is more to come from this stock.

  • Jack in the Box continues to perform well.  Management raised guidance on the last earnings release and we expect the refranchised and remodeled concept to continue to generate strong cash flows for the company. 
  • Qdoba is taking time to win over the naysayers.  It is difficult to know, but our take is that recent softness in the stock is likely related, at least in part, to David Einhorn of Greenlight Capital making comments on the new Taco Bell “Cantina Bell” menu and how the initiative is set to take share from Chipotle.  Clearly, the implication is that this new menu at Taco Bell will have a similarly negative impact on Qdoba.  Given the AUV’s and restaurant-operating margins Qdoba stores have achieved during Chipotle’s incredible same-restaurant sales growth over the last couple of years, we are confident that Qdoba still represents a compelling growth play for investors, even with Taco Bell becoming more competitive.
  • The stock is valued at 7.2x EV/EBITDA, lower than WEN and SONC and higher only than GMCR.  Given the growth prospects, future cash flow generation, and asset base behind company, we believe that JACK should be valued more richly.  At 7.2x EV/EBITDA, with EBITDA growth accelerating ahead of expectations, we believe that JACK could see two-to-three turns of multiple expansion.  On this basis alone, Jack in the Box has $10-15 in upside from the current stock price.

Quantitative View

Keith added JACK to our Real-Time Positions at $27.33.  The immediate-term TRADE range is $27.31-$28.33.

IDEA ALERT: LONG JACK - jack levels

 

IDEA ALERT: LONG JACK - JACK SOTP

 

IDEA ALERT: LONG JACK - qsr ev to ebitda

Howard Penney

Managing Director

Rory Green

Analyst