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Jack in the Box Inc. Message Board

  • john.heil2 john.heil2 Jun 25, 2011 8:30 PM Flag

    pressure on shortsellers

    They just announced the JACK short interest went up 500,000 shares over the past two week period to 4.1 million shares. This is risky, naive, uninformed short selling. At any time an independent group could tender for the shares as we saw with Burger King and CKE Restaurants, direct competitors of JACK. It makes no sense to short a stock selling at less than 11X next year's earnings. (the topflight Morgan Stanley analyst in an institutional research report estimates 2.00 a share EPS for the year ending about September 30, 2012) Add to that a company in comeback mode, where their board of directors just authorized another $100 million buyback of shares in the open market. Furthermore, with talk about Qdoba's value to JACK increasing daily (as Chipotle leads the way), and given the price action of the shares which have returned over twice what the S&P 600 small cap index has returned since the first of the year, and one can appreciate that the short selling mentality in this case is either masochistic or blindly irrational, reckless and impulsive. (possibly just ignorance of course) But such folly suits our purposes just fine since it represents underlying demand for the shares that MUST BE HONORED AT SOME POINT. Simple math: if the company is now in the market for another 4.5 million shares, and if there are 4.1 million shares sold short, where is the supply of stock coming from given the favorable prospects for JACK? I estimate the float is now about 48 million shares, and institutions hold a very high 95% of that float. Consider also that long term holders are quite aware of a potential overnight announcement visavis Qdoba or a possible buyer surfacing, and fewer and fewer of them dare risk selling shares at the current depressed price. Finally, what if another analyst upgrades JACK next week? Where does that leave the shorts who positioned over the past ten to fifteen days at well under the current price? As an aside, I very much like the technicals of any stock that rises for 12 straight market sessions as JACK has just done.

    Big J in L.A. (retired security analyst, The Foristall Co., member The Los Angeles Society of Security Analysts. I followed the hotel and lodging, gaming, and restaurant industries for 13 years before becoming an investment counselor. My track record on these boards as a lone voice urging the purchase of MCD when it sold about 10.00 a share, and BWLD when it could be bought for 18., should speak for itself. Now, hopefully, JACK completes the trifecta. I am rather confident about this prospect as you might gather.)

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