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Jack in the Box Inc. Message Board

  • john.heil2 john.heil2 Nov 18, 2009 6:02 PM Flag

    The Big J perspective

    In my post of yesterday I said worst case for JACK would be guidance of 2.00 for fiscal 2010. Their estimate of 1.90 to 2.10 qualifies in this regard. And by the way; this management is known as super conservative in making their estimates going forward. So in my view nothing has really changed here. We know the economy is weak. But no one has officially suspended the business cycle. Things will turn around in the second half of 2010 in terms of comp performance for most QSR operations.
    I say Jack is a solid buy in here at $18.50 a share (after hours price). That is 9.25 X 2.00 and approximately 4.6 X cash flow of 4.00. per share. Compare that to any other restaurant company and see the reality of the situation.

    And what do you get for your investment?

    1. A company that should begin to grow at its historical growth rate of 11-12% by fiscal 2011.
    2. A company that will be buying back probably 40%+ of its outstanding shares over the next 4 years. (a lower price maximizes this return)
    3. A company that will spin off its Qdoba operations probably within the next year or two, giving a significant bonus to shareholders.
    4. A company that will have a solid balance sheet and low capital expenditures indefinitely, after it completes the unit upgrades and takes in those refranchising proceeds which could be as high as $400 million over the next four years.
    5. A company that will likely initiate a dividend of .60 a share within a year or so, according to Credit Suisse.
    6. A much more stable flow of earnings once the refranchising program is completed.
    7. (and not least of all by any means) a company that can grow geographically by piggybacking off choice McDonalds and Burger King locations in 32 states and abroad.

    So this is only the beginning for JACK, and my advice, as a retired security analyst, is that you do not get hung up on current earnings. This remains a very profitable company in the worst recession in over a generation, with an earnings yield of 10.8% (2.00 based on a share price of 18.50) or actually a little higher given that we are just about two months into that new fiscal year. Be a Buffett kind of person and exercise a little patience. You will be very happy you did. So seize the opportunity now looking to that bright future. Big J in L.A.

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