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Jack in the Box Inc. Message Board

  • watchindamarket watchindamarket May 4, 1999 10:02 AM Flag

    FM........ Here's The Buzz......

    While using the message boards on
    http://hotstocktip.com , I came across the folloowing information
    concerning Foodmaker Inc. The owner of the Jack in the Box
    fast- food chain posted second-quarter earnings of 35
    cents a share, beating the 29-cent average estimate of
    seven seperate analysts. The company said earnings rose
    to $13.6 million for the quarter ended April 11 from
    $8.7 million, or 22 cents a share, a year earlier.
    Foodmaker rose 11/16 to 24 13/16.

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    • Well, you're certainly not the most optimistic
      here: Mistac has a price target between $33 and $62.
      :-)

      While I'm very bullish on FM's future earnings (at
      least more so than the analysts), I've learned to be
      more conservative with price targets. Years ago, when
      I first bought in at $5, I had a price target of
      $18, then a couple years later, $24, and most recently
      $28. But we don't seem to get to these price targets
      as quickly or in the way I thought we would and we
      rarely get the kind of exhuberance behind the stock
      valuation that one would expect from a successful growth
      stock. FM is still the Rodney Dangerfield of
      quick-service restaurant stocks. Perhaps it has been a lack of
      exposure, the regional presence of the chain, or the
      relatively small size of the company. Most likely, the
      highly-leveraged balance sheet is a detraction.

      FM just
      announced a quarter that blew away the earnings estimates
      and was up 59% over last year's 2Q. The CEO was
      interviewed on CNBC. (forget about the Forbes article, that
      probably conjured up more negativity and uncertainty than
      anything else) We SHOULD be at $28 right now. Was this
      earnings surprise already priced into FM? If so, then
      investors are putting an even lower valuation on FM than I
      thought, giving it a P/E as low as 15 based on my FY99
      earnings estimate of $1.81 and the current stock price of
      $26.50.

      Many of FM's strongest moves up or down
      don't appear to make any sense because they are not
      associated with any news. Since 85% of the shares are owned
      by institutions (officers and directors own another
      10%), I believe these moves occur when an institutional
      investor takes a position or starts unwinding one. The
      dips are the most frustrating since FM has a low P/E
      relative to the market and its industry, yet continues to
      surprise each quarter with strong earnings. I have done
      very well buying on these dips. It may take a while
      for FM to move up solidly past $27, but if we do go
      below $26, I'm a buyer. And I always keep a few dollars
      at the ready for a market correction when FM can be
      scooped up at an even greater discount.

      As always,
      do your own research,

      David

    • I think you are being a bit too conservative.
      After I digested this quarters numbers, I came up with
      a floor at 26 as well - any dip below that is going
      to be an anomaly and an exceptional buying
      opportunity. On the upside, my numbers were considerably
      higher. I am looking for a target price of $36 this
      quarter - based on beating annual earnings estimates and
      a higher PE. While I don't think that this is
      unreasonable, I DO realize that I can be an optimist at
      times...

    • Consensus earnings for FY99 have been $1.43
      (excluding unusual items, of course) for the past couple of
      months after an increase earlier this year. This number
      will go up again after analysts digest the latest 2Q
      numbers, but for now, I'll use this consensus number as a
      basis for my price/earnings ratio estimates.

      At
      $26/share, FM has a P/E of 18 based on the FY99 consensus
      earnings estimate. I've already laid out my argument that
      both the upcoming 3rd and 4th quarters should easily
      beat the current earnings estimates of $0.37/share if
      we extrapolate from previous seasonal patterns. The
      Spring and Summer quarters combined are FM's prime sales
      and revenue period. The 3Q has been on average about
      44% higher than the 2Q, and higher even than the 1Q
      which has four more weeks in it. The 4Q is usually
      about the same as the 3Q. This year, FM's 2Q was much
      higher than expected (59% higher than last year's 2Q),
      so whether the 3rd quarter will match the previous
      seasonal pattern and come in a full 44% higher remains to
      be seen. But if they do come in at my estimates of
      $0.53 each quarter, FY99 earnings will be $1.81/share.
      And using a P/E of 18 yields a stock price of about
      $32.50. Keep in mind that this price target excludes
      unusual items (so far the extra $0.29/share from the 2Q)
      and is based on FY99 earnings. A P/E calculation
      based on next year's estimates would yield a
      significantly higher stock price.

      Even if sales are
      totally flat for these next two quarters ($0.35 each
      quarter), FY99 earnings will be $1.45, with an implied
      stock price of $26 at the 18 P/E valuation. But
      clearly, sales will not be flat; the seasonal boost is not
      going to go away suddenly and FM will be adding 53 more
      new stores during the next 2 quarters which will
      contribute to sales and earnings. Other factors I can point
      to for my bullish outlook are the accelerated year
      over year growth that showed up in the 1Q and 2Q, and
      the PSA sales improvements which have jumped up to
      9.1%. There is always the risk that FM might announce a
      charge against earnings, but they run a very tight ship,
      and I don't foresee this happening. In short, I'm
      looking for a great spring and summer.

      You can
      pick your own earnings estimate, but even if you split
      the difference between my bullish $0.53 and the
      current outdated $0.37 consensus, for an estimate of
      $0.45/share, that will result in FY99 earnings of $1.65, and a
      target stock price of about $29.75 with a P/E of
      18.

      Unless the street decides to value FM and its growth
      potential at a lower P/E than it has had in recent months,
      I feel pretty comfortable with a floor of around
      $26 as we move through the 3Q, with the potential to
      reach $32.50 if FY99 sales and earnings come in as I've
      estimated.

      I am raising my $28 price target to $32 by the end
      of the 4Q.

      As always, do your own
      research,

      David

    • Thanks for the Forbes link, ck__too. And thanks
      for saving me from wasting my money on this
      issue.

      Unbelievable. The media's penchant for drama and exploitation
      of headline grabbing tragedies in order to sell
      their publications, that is. I didn't think I would
      ever see this much emphasis on the 1993 E.coli
      outbreak in another financial article on FM, but here it
      is again. Dripping with hyperbole, the first 3
      paragraphs read like a supermarket tabloid story.


      Here are some of the phrases the writer used: tragic
      outbreak, P.R. nightmare, downward spiral, families of
      victims, enraged franchisees--and that's just in the
      lead-in line and first sentence! In the next paragraph he
      even works in the Exxon Valdez spill and the Tylenol
      sabotage case. The writer in me was disgusted, but after a
      few minutes, I found it laughable. NOT the tragedy or
      Foodmaker's responsibility for its past, but that the author
      had conjured up this article as if it were breaking
      news or worthy analysis of a company's comeback story.
      This would have been a good article in 1998, maybe
      even 1997. IMO, an approach that could have actually
      been of some use to readers would have mentioned the
      crisis, but focused more on how FM achieved their
      comeback and what they've done since then to become even
      more successful. Besides their food safety program, FM
      has innovated in many other ways in order to beat the
      competition. There are many interesting lessons for investors
      and businesses to learn from a company that has
      brought its stock up from $4 to $27 today.

      The
      author does mention the changes made after the crisis,
      but 95% of the article describes events that occurred
      6 years ago. All this was covered extensively then
      and was continually brought up for years. I had to
      check the date on the Forbes issue. I guess it's just
      deja vu all over again.

      David

    • Try this link and see if it is still active:

      http://www.forbes.com/forbes/99/0517/6310156a.htm

    • I guess you haven't noticed that I have dunlaps
      disease - "My stomach Done Lap Over My Belt." My wife is
      an image consultant and does a nice job dressing me
      so the spare tire is well hidden
      underneath.

      Arnie

    • "In fact, I have a bulging stomach to prove it.
      David can verify my girth."

      Sorry, no can do,
      since I always perceived Arnie as about proportionate
      for his height, and certainly not a member of the
      jumbo club (a majority of us here in America). I'm not
      sure why Arnie refers to his girth so often in these
      oversized terms, but I suspect it is because:

      1) He
      doesn't want to be recognized if you happen to hear his
      wife calling out "Arnie!" in public (or in a movie
      theatre via his Nextel phone's Direct-Connect
      feature)

      2) He wants to be B.M.O.C. (Big Man On
      Cablemodem)

      ;0)

    • "Use some of those FM profits and buy a copy of Forbes. There's even a picture of Jack the clown."

      Is it suitable for framing?

      ;-)

    • Now you have done it... I am starving! Unfortunately I'm in Boston..no JIB (new symbol?). I will have to settle for a bagel sandwich.......

    • Yes, I have no position. I've never disliked FM.
      In fact, I have a bulging stomach to prove it. David
      can verify my girth. Unlike him, I like the Jumbo
      Jack cow burgers, just loaded with juicy calories.
      Curly fries and Oreo shakes aren't bad
      either.

      Arnie

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