We know that JACK, BKC and SONC have been beaten down during the course of the recession to the point where one of their peers, CKE Restaurants, is being bought out at a bargain basement price. Management at JACK's recently said that the California market "had stabilized." So these lower prices have now discounted the worst case scenario, with JACK closing today at about 10.3 X the calendar 2010 consensus estimate of $2.04 a share. Given the five year growth outlook for this company, you could not want a better entry point in my view.
Here is what I think the Jeffries guy has in mind. He added JACK to his list of companies followed several months ago with a neutral rating. This indicated to me that he likes it or why would he even bother to follow it? But he is getting greedy in terms of furthering his career and now wants to see JACK even lower so he can recommend it and look like a hero. That is just too transparent an ulterior motive on his part. Believe me, I was a security analyst myself for many years; I know how these guys and gals think. There is nothing illegal about what he is doing, but be wary of the real reason why as I am speculating.
So you can buy JACK with impunity, and in a sense we have the Jeffries guy to thank for this second opportunity to load up. And remember, Qdoba is worth something not reflected in the stock. Their comps are now favorable. JACK could either sell this subsidary or later on spin it off. It is a hidden asset nobody talks about. Likewise, there is a floor under the stock because of the CKR buyout. Why should JACK now sell for a 50% discount to the buyout price of CKE Restaurants? Some private equity group could take a shot at them any time. Watch the volume; this will tip it off. Any firm could load up on these shares, then bid for all of them at $27. A white knight charges in and offers 30 (still a cheap price). Then the private equity group can cash in or up the bid. In other words, this is a situation in which they cannot really lose, and one of these days one of them will figure this out. And remember this: the JACK balance sheet is much better than that of CKR, BKC, SONC, DPZ and DENN. How tantalizing can it be? Could happen at any time in my view. But even if it doesn't this is a solid recovery play for the next 12-18 months. From these levels, I think you will at least make 40-50% on your investment. Folks, that is a no brainer at this point, at these levels, and with an analyst who is hoping against hope that the shares tick a bit lower so he can recommend JACK. But it is a gamble on his part to wait, and he well knows this. Thus, the desperate, egregious bit of propaganda issuing from his office today.