With over 3 million shares traded in the last two sessions, and at a pretty stable price after the one point gap down yesterday, the question is: who is buying? The company has to wait 48 hours after release of their operating results, so that means they can't buy until Monday with their $47 million authorization. Blue Harbor, with a position of over 5 million shares recently acquired, may be averaging down its price from the 20.50 level and building to a 9.9% stake which is another legal reference point. But anybody else out there?
With all the talk about the possibility of a private equity group coming after JACK, is that process now starting? An analyst today again remarked about that possibility. He also downgraded to a target price of 18.00. How curious, seems very odd to me. At that price the shares would trade at less than 9X a preliminary calendar 2011 EPS estimate. Moreover, I wonder if he understands the concept of a reward-risk ratio? If the stock is now about 19. and the target is 18. that means there is one point of downside risk. If, on the other hand, in the next 12 months a private equity group comes after JACK, and the bidding process puts the shares up to 28., then the reward-risk ratio is a humongous 9 to 1. WOW! I'll take those odds anytime, and I wonder if it is really worth venturing an opinion on a stock with that very real possibility out there. I guess it is my cynicism once again asserting itself, but is there an ulterior motive in that sort of determination? Oh well, I am only an old guy, a retired security analyst who is probably on the verge of senility if not already there. What do I know about value and the way the game is played.
I said some time ago that I thought a private equity group could make some big money on JACK without even breaking a sweat. And here is how. Say they accumulate as many shares up to the limit allowed before having to report to the government on their new position.(with the price depressed now is their opportunity) Then let us say they make an unfriendly tender offer at 24. a share, testing the market so to speak. Well, I can guarantee there are other offers out there with the first offer that low. You get the drift? At that point the private equity people can either steal the company at 24., or, much much much more likely, cash in their stake at maybe as high as 28. What a huge profit for absolutely no risk, zero risk in my view. I have been around this business for 40 years, and if I was still a player this would be my advice to any number of private equity guys and gals until someone took me up on the proposition. Then I would consult with them for a fee from that point on. Kind of makes me want to come out of retirement just musing this way. But then again, this might just be the fantasy of a senile old man.
Jack in the Box (nyse: JBX - news - people ) enters the list because of a drop in cash flows equal to nearly three times the reported rise in accounting earnings. Moreover, the current valuation implies that cash flows will be more than 1,000% greater than current levels. The company has $1.2 billion in off-balance sheet debt, which is nearly 50% of its market value. This stock is writing checks that its bottom line cannot cash.
THE ONLY THING TO NOTE IN THE REUTERS ARTICLE IS AS FOLLOWS:
"You'll probably see a lot of people get out of the leasing business and I do see a consolidation of what kind of equipment might be leased,... but I can't see in my mind how changing lease accounting is going to push a company over the edge."
Taylor said he would expect lenders to work with companies affected by the change and that some companies may also want to restructure some leases due to the change.
The accounting proposal would be open for public comment and go through a revision process before becoming a formal rule. The new standard would likely not take effect for several years.
OPERATING LEASES ARE ALREADY DISCLOSED IN THE FOOTNOTES OF FINANCIAL STATEMENTS.
Barrons thinks JACK has a lot of potential. What you are forgetting is that the market is a discounting mechanism. It does not care about the past, only the future. The slightest uptick in SSS sometimes this coming year and JACK's shares are off to the races. Don't bet your life looking only in the review mirror. Keep your eye focused on the road ahead or pay the price.
nearly 1/2 of JACK's earnings for this year and going forward will stem from refranchsing gains (not everyday business). once this is considered, or stripped from valuation, JACK looks even worse. management blames unemployment conditions in CA and TX as a reason for JACK's poor sales numbers. that being said, these figures aren't getting materially better anytime soon. besides, the same conditions exist for other companies that aren't doing so poorly. i think this one is a sinking ship!