As usual the shorts got it exactly wrong again. They increased their positions substantially just prior to the constructive conference call last week. The latest figures show 3.4 million shares sold short, about 7% of the float. This is a big number going into the buoyant summer months when the QSR category does better on a relative basis.
JACK's price action is in a positive mode with almost 8 million shares changing hands in the last 7 market sessions, and the stock up during this period. (once again it based at 20 and then popped on the good news to over 22.50) This was on almost 16 percent of the float so far.
With California Pizza Kitchen the latest restaurant company to be acquired, my view that the private equity people are very much interested in the space is again confirmed. JACK is certainly a better spec for these people in terms of a more reasonable buy-in. Anybody tendering at 25. cannot go wrong. Likely a White Knight appears on the scene and they are off the hook if not wishing to up the ante. What a payday for a no-risk situation. If they should get the company that cheap, 12.5X my estimate of $2.00 next year, (ending about Oct. 3, 2012) what's not to like about that. The turnaround over the next three years, with the re-imaging program and menu tweaking essentially completed (grilled sandwiches was a master stroke and eventually differentiates JACK from other QSR's), should provide a good boost in EPS as comps rise.
Absent a buyout now, the company's ever more aggressive buyback of its common stock in the open market is a key to future EPS growth. None of the analysts I have read gives enough credence to what will be an ongoing cap-shrink phenomenon for JACK.
And think about this. I suspect a private equity group would be extremely tantalized by the prospect of selling off Qdoba right up front at a high IPO price. This raises a ton of cash and helps finance the purchase. And remember, JACK's balance sheet can be levered up significantly to help finance the purchase t as well. No comparison with that of Sonic's financial condition which is way over-leveraged.
Big J in L.A. (retired security analyst; I followed the restaurant, lodging and gaming industries for The Foristall Co. for 14 years; members The Los Angeles Society of Security Analysts.)
John You miss one obvious fact. After private equity has owned this company twice, with mergers, spin offs, probably half a dozen take-private & public offerings by the same management group (now retired) and a top PE firm with $8B under management, there is no interest today by the guys that have owned it so many times before. I believe this is a statement about the lack of confidence in this management. They fail to deliver. I am long and have been for years...this is a dead stock.
Totally disagree. The PE market is sizzling in this space (too many deals to mention here). The facts surrounding JACK have materially changed in recent months. So will the opinion of the market. While this management's performance is hardly inspiring, unless it finds a way to monetize Qdoba, someone else will throw them out and WILL find a way. Given the valuation of CMG, it is only a matter of time. In fact, there is a often heard opinion that Qdoba is better than CMG (in menu and food quality). If that is only partially true, such an inefficiency and mispricing will not remain undiscovered forever.
Xlnt analysis. The CPKI news only further establishes that the space is definitely "in play". Seems like its only a matter of time until someone makes a run at them. But I don't think an offer at $25 would get it done. Given the value of Qdoba, it will have to be North of $30.
Oh, I agree. My point is that some private equity group could bid at $25, with the expectation of someone coming in at a higher price. Because they have already positioned up to 10% of the stock outstanding, this makes it worth their while to bid aggressively themselves, perhaps as high as $26. initially. They can have a lot of confidence at this level because even if having to buy the company at that price it is a steal.Big J in L.A.