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Jack in the Box Inc. Message Board

  • john.heil2 john.heil2 Nov 18, 2010 1:11 AM Flag

    Qdoba versus Chipotle

    Some have asked if the comparison between Qdoba and Chipotle is realistic. These are similar concepts, same quality businesses and both originally out of Denver. What makes Chipotle more effective now is the fact they went public some years ago. When Qdoba does the same thing, through a spinoff and simultaneous IPO, they will raise enough cash to be self-sufficient in terms of future expansion with ever increasing cash flow just like Chipotle at present. Many investors are not aware of the levered enhancement when new funds are brought into a company this way. JACK holders get their shares of Qdoba and then sit back and watch the IPO monies pour in. Only this time JACK management will not make the same mistake the McDonalds people did back when they spunoff Chipotle. They seriously underpriced that issue and the stock doubled out of the gate. Qdoba will be valued much higher on a relative basis, which only enhances the worth of that spinoff operation to JACK holders.

    Warren Buffett commented recently that if he had only $1 million starting out today, he would buy nothing but spinoffs and expect to get a 50% return on his investment annually. That is all he would buy! And surely, when this little baby Qdoba comes public, it may well lead the way in IPOs in whichever year this happens. I expect it will be next year, maybe in mid to late summer. Meanwhile the company will probably buy out a few more franchisees as they did with the Boston group (16 units at less than the build-out cost). That signaled what is in store; they want to enhance the company owned portion of this business which makes it a more viable offering. The point I am making is that JACK shares have not priced in any of this theoretical Qdoba valuation. Whereas Chipotle is going through the roof at 36X next year's earnings, calendar 2011. (JACK sells for 11.1X the 2.05 EPS estimate for the fiscal year ending the first week in October 2011) So in theory you get Qdoba now for nothing, versus Chipotle at its zenith of about 237. a share. That is my kind of comparative; the best metric of all. Recall that Motley Fool actually compared these two organizations, Chipotle and Qdoba, in a lengthy analysis, metric by metric. Sure Chipotle looked better on paper, and I told you why. But the fact they even made the effort to compare these two companies head to head speaks volumes. I am a retired security analyst and picked up on this right away. Just mentioning the two in the same breath, charts, diagrams and all, should have rung a bell on Wall Street to take another look. So bottom line, you get a very low PE situation with the Qdoba kicker. Also, there is a safety net in valuation because of the CKE Restaurants and Burger King buyouts. And finally, recent new sponsorship from Morgan Stanley and RBC Capital Management is in force. The high short interest ratio probably is anticipating the already priced in poor 4th quarter in the fiscal year ended about October 2, 2010. Believe me, the company wrote off everything including the kitchen sink in that number. So a wise investment now has limited downside in my view, with all that upside pending an economic recovery over the next two years. All the best, Big J in L.A.

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    • This analysis is on the money. Very insightful. Wall Street doesn;t have 12 month forsight which is why this stock is only in the mid 20's. This stock will easily sail past $30 before the spin off and then you will also have the huge revenue gainer spun off for even more. I wish I had more money to buy more JACK shares. I love the JACK story.

    • Good analysis but I'm more concerned as to how the upcoming report will look. Thoughts?

      • 1 Reply to pmoishe
      • I think that most of the "bad news" has been baked in the stock for some time now. JACK has rallied with the market and the restaurant group, and is only slightly vulnerable going into the announcement. I am keen to know whether they bought back the rest of the shares they are authorized to.
        I think we have to keep our eyes on the ball here. JACK is expected to earn 2.05 this coming fiscal year; whereas what is past is past. They probably give themselves a wider guidance parameter, but the economy seems to be basing and ticking up slightly here in California which should continue next year.

 
JACK
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