Jack in the Box, Inc. (NASDAQ:JACK)

CAPS Rating: 3 out of 5

Owns, operates and franchises 2,079 JACK IN THE BOX quick-service restaurants and 318 Qdoba Mexican Grill fast-casual restaurants, primarily in the western and southern United States.

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Member Avatar regotoguy (99.62) Submitted: 2/20/2015 10:59:12 AM : Underperform Start Price: $96.24 JACK Score: -0.04

Valuation is too rich. How many fast food joints do we need?

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Member Avatar benyboy (< 20) Submitted: 2/19/2015 6:37:26 PM : Outperform Start Price: $96.52 JACK Score: -0.39

cramer

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Member Avatar polley11 (81.40) Submitted: 10/28/2014 10:24:47 AM : Outperform Start Price: $70.26 JACK Score: +30.72

Q'Doba will outpreform for them.

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Member Avatar lepera347 (82.54) Submitted: 8/8/2014 2:43:53 PM : Outperform Start Price: $60.99 JACK Score: +49.34

Switching to a franchise model will definitely help boost efficiency/revenue. Qdoba, like Chipotle, will continue to grow as the fast casual model has much growth ahead of it. Moreover, Jack in the Box offers a unique menu compared to its peers, which separates them from McDonald's and Burger King. Plus they have plenty of room to grow, particularly on the east coast.

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Member Avatar racoveanul (83.28) Submitted: 4/12/2014 3:13:04 PM : Outperform Start Price: $55.97 JACK Score: +57.59

JACK has an A for financial health and a PEG less than 1 on Morningstar, so it's one of my long picks.

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Member Avatar ayaghsizian (96.96) Submitted: 1/8/2014 9:05:21 PM : Outperform Start Price: $48.31 JACK Score: +85.70

Qdoba...That's it...I couldn't care less about J in the Box

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Member Avatar bpdou (< 20) Submitted: 9/27/2013 9:55:49 PM : Outperform Start Price: $39.47 JACK Score: +119.19

Qdoba will prevail. If you're a lover of Chipotle, Qdoba is the better product and is growing.

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Member Avatar CarlosDK (< 20) Submitted: 9/26/2013 6:41:33 AM : Underperform Start Price: $39.54 JACK Score: -120.13

top hs pattern

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Member Avatar Godshands (< 20) Submitted: 4/11/2013 10:21:47 PM : Outperform Start Price: $35.05 JACK Score: +143.09

1 word, Qdoba , tho the name of the company is Jack in The Box, the winner for this company is the next Chipotle ???
Qdoba is awesome food with a great following ..

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Member Avatar CoreAndExplore (78.72) Submitted: 6/1/2012 12:33:09 AM : Outperform Start Price: $25.11 JACK Score: +222.31

Qdoba is the main driver of growth for JACK, and if CMG is any indication, there's alot of opportunity out there for "fresh" Mexican cuisine.

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Member Avatar ShawnRobinson (69.12) Submitted: 4/2/2012 7:51:16 PM : Outperform Start Price: $23.63 JACK Score: +260.42

JACK is similar to CMG in that they both serve fast casual Mexican food but is much less profitable on a per unit basis.
Most investors would shy away from the company given the profit disparity but if you examine the items that make Qdoba less profitable, I would argue that the company has room for improvement. Examining the cost disparities further, the main difference in unit costs stem from differences in labor and occupancy costs.

Click below for my full post on the Motley Fool Blogging Network
http://bit.ly/HgctGR

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Member Avatar TMFDeej (99.31) Submitted: 3/30/2012 3:17:40 PM : Outperform Start Price: $23.82 JACK Score: +256.40

I like JACK's ongoing efforts to franchise its company-owned stores. The move should significantly increase JACK's margins going forward.

Furthermore, the company has an undervalued asset in its Qdoba brand, which one hedge fund on Sum Zero estimated would be worth $20/share all by itself. A spin-off, which the company has thus far resisted, could be the catalyst that unlocks this value.

Deej

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Member Avatar IlluminatInvest (51.68) Submitted: 3/12/2012 3:09:04 PM : Outperform Start Price: $23.32 JACK Score: +261.59

If their stake in Qdoba was valued the same as Chipotle, it would be worth more than the market cap of the entire company.

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Member Avatar abujordan (69.15) Submitted: 2/3/2012 4:36:07 PM : Outperform Start Price: $20.95 JACK Score: +298.66

They own Qdoba which I like much better than Chipotle (food/taste wise). They are investing more in new Qdobas, and have a lot of market to expand into with both stores.

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Member Avatar hedgemore (98.79) Submitted: 9/23/2011 7:39:32 PM : Underperform Start Price: $19.63 JACK Score: -308.74

No burger worth mentioning. How hard is it to market a burger? McDonalds has burgers to spare; big Mac , quarter pounder, filet-o-fish for Fridays, Wendy's has the square patty thing. In and Out has the double-double, carl's has the $5 dollar burger and the famous star. But Jack can't seem to pull a burger out of their box!

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Member Avatar itsdave990 (50.85) Submitted: 8/11/2011 1:58:37 PM : Outperform Start Price: $20.23 JACK Score: +297.11

will new stores opening in china and expanding in india I see this being a good choice

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Member Avatar mbdouglas (63.99) Submitted: 7/8/2011 5:37:57 PM : Outperform Start Price: $23.00 JACK Score: +261.74

Qdoba

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Member Avatar XMFConnor (97.36) Submitted: 7/8/2011 3:40:44 PM : Outperform Start Price: $23.28 JACK Score: +257.61

This reminds me a lot of Wendy's 24 months or so ago... the company is in a period of transition-- as it aggressively converts its company-owned stores into franchises. This should make a more predictable revenue stream and result in a higher multiple. Furthermore, (and what I really like) is the Qdoba operation. I think it is inevitable that it is eventually spun-off and allowed to succeed on its own. Think Chipotle and Mcdonalds, Wendy's/Arby's. I've seen this before and I like this. It's trading at 9X EV/EBITDA (with admittedly a lot of capex spending right now), so it's not super cheap. If it falls a bit.. and I was able to buy it around 6-7X EV/EBITDA, I'd probably pull the trigger in real life.

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Member Avatar jckeil (88.53) Submitted: 6/2/2011 8:35:33 AM : Outperform Start Price: $21.65 JACK Score: +286.94

mmm...Qdoba

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Member Avatar vrk100 (< 20) Submitted: 2/25/2011 3:42:48 PM : Outperform Start Price: $21.88 JACK Score: +282.71

ack represents an opportunity to buy into a business at 7.5x CF which is undergoing a refranchising program where they are continuing to sell CF(even at these depressed levels) at an effective multiple of 12x. In addition the CF they are receiving in place is a more stable, royalty based CF which traditionally earns a much higher multiple.

Investment Thesis:

Attractive Valuation
-7.5x EBITDA less Capex represents a discount to 5-year Jack trading multiple made even more compelling given the increasing contribution from Qdoba and now nearly 50/50 franchised/owned mix at Jack in the Box concept

-Franchisors well positioned in an inflationary environment and likely to be outsized beneficiaries (if Joe the Plumber starts paying $6 for a value meal vs $5, the 5% is fixed)

-Refranchising economics even at bottom levels still very accretive (12x effective cash flow multiple on sale) and provides for a natural catalyst

-Significant potential for Geographic Expansion of Jack and Qdoba Concepts
--69% of Jack units are in California and Texas and the brand is only represented 17 states
--Even in depressed markets, new units yielding ~20%+ cash on cash run-rate returns

-Qdoba while definitely not Chipotle still has significant room to run and has increasinginly become a larger contributor. The business has separate headquarters and is readily separable at an accretive multiple

-CKE buyout is positive news but likely priced in and a low probabilty event. Jack and Qdoba are definitely stronger concepts than Carl's Jr/Hardees and also likely better positioned for the environment. Also as JACK shifts to the franchise heavy mix it becomes increasingly attractive to PE. That being said management is long entrenched and unlikely to pursue a buyout.

Potential Reasons for Current Valuation:

Liquidity Concerns
There has been some concern related to the Jack's liquidity and ability to cover its interest etc. The business is a large producer of operating cash flow and the majority of its capex (related to re-imaging existing stores or building new ones) can be delayed to manage through any tightness fairly easily. Given the continued tough environment for commerical/real estate focused builders in CA/TX etc, builders are willing to accept rather agressive payment terms.

Refranchising Concerns

There is a very valid fear of terms continuing to deteriorate and Jack's further need to providde seller financing (whether in the form of deferred payments or breaks on royalties). In talks with a handful of QSR franchise brokers, it appears that valuations for Jack are holding steady and are held above a floor by the cost of new franchise build and the 15-25% cash on cash returns available to Jack franchisees. Furthermore, the brokers we spoke to say Jack has been prudent in screening potential buyers but did comment that most of the units being sold are re-imaged ones which is a slight negative but to be expected. I have assumes $580k net proceeds in my calc below which is slightly below with what Jack is stating publicly.

Difficult Sales Environment
-negative comps at both Jack and Qdoba in 2009
-Increased competitive discounting with QSR focusing on value and Casual Dining encroaching on QSR price points
-Rising unemployment in California (12.3%) and Texas (8.0%)
-Lower grocery prices coinciding with QSR downturn as families look to eat at home
-Jack is strong in all day parts with lunch/dinner only representing 55% of Sales
-Continued weakness in franchisee financing could delay expansion plans impact franchisee economics

Overview:
Jack in the Box is a quick service restaurant (“QSR”) operator of two concepts, Jack in the Box, a 2,212 unit hamburger chain concept with operations in the Istern and SouthIstern US and Qdoba Mexican Grill, a national 500 unit fast casual mexican concept. The Jack Concept franchised/owned mix is 46%/54% and represents $385mm or 91% of the pre-corporate 2009 EBITDA of $422mm. Company owned EBITDA (Jack+Qdoba) represented $302mm or 72% of the 2009 pre-corporate EBITDA.

Jack has been undergoing a refranchising strategy since 2005 when only 22% of its restaurants Ire franchised. The company has publicly announced a plan to refranchise 150-190 units a year with the ultimate goal of a having an 80%/20% franchised/owned mix which is in-line with the other public QSR operators. I believe the refranchising program is value accretive to the current trading price (once you factor in the increase revenue, cost savings and the proceeds). Furthermore, I believe as the cash flow mix shift more towards dollars generated from franchise fees the stock should experience multiple uplift.

Refranchising Economics
Fundamental to our investment thesis is understanding and correctly valuing the much discussed refranchising program. Given the public commitment to the program and the fact that the sell-side views these as recurring and therefore includes them in their earnings estimates, the company has been forced to induce sales with seller financing and significant rent and royalty breaks.
Using conservative assumptions and discounts to the company’s historical guidance, I believe Jack can still achieve an effective sale multiple of 12x + which represents significant accretion to the current trading level. Furthermore, franchisor cash flow typically and rightfully earns a valuation premium to the more volatile restaurant operator cash flow.

Average Company Operated Unit
Sales 1,420
Unit Level Cash Flow 220
Field G&A (25)
Maintenance Capex (32)

Company-operated Cash flow 163

Franchise Unit - Franchisor Cash Flow

Sales 1,420

Royalties 71
Average Rent Spread 39
Distribution 7
Field G&A (3)
Franchise Cash Flow 114

Cash Flow Hole (49)

Effective Sale Multiple

Average Proceeds (post tax) 580
Franchise Fee 50
Cash Proceeds 630
Cash Flow Hole 49
Implied Multiple 12.9x

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