IDEA ALERT: LONG JACK

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

 


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more