Bill Gunderson

About the Author Bill Gunderson

Bill Gunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now, and developer of the Best Stocks Now smartphone app. He offers four free weeks to his weekly Best Stocks Now to Seeking Alpha readers. http://www.pwstreet.com He also hosts a daily stock market radio show on AM1000 KCEO from 7am-8am. http://www.kceoradio.com Bill has appeared on the Fox Business Channel and on Bloomberg radio numerous times. He has been published in Barron's, Forbes, TheStreet.com and numerous other publications i.e. Los Angeles Business Journal, San Diego Union Tribune, Phoenix Business Journal, Salem News, Rochester Business Journal, and many others.

It Has Paid To Know JACK


Back in the fall I wrote an article about San Diego-based fast-food operator Jack in the Box (NASDAQ:JACK) entitled “Do You Know JACK?” Well it certainly has paid to “know JACK” over that time period. The stock price has gone almost straight up! For your reference, here’s the link to the article.

Back in the September/October timeframe, Jack in the Box stock was trading around $68 per share at that time, having just posted strong earnings in August. The stock just reported another good quarter on February 18th, driving a slew of analyst upgrades and positive earnings revisions on better than expected results. This sent the stock price to record high levels, teetering just below the $100 per share mark. That’s a return of almost 40% since I wrote about the stock.

Now in fairness, I don’t think anyone anticipated that spot oil prices would plunge 50% over that timeframe from $100 per barrel to current levels of a little more than $50 per barrel. Lower gas and energy prices provide a nice tailwind for restaurant operators like Jack in the Box. But that doesn’t make the quarter an earnings slam dunk. Just look at other operators like McDonald’s (NYSE:MCD) who have not gotten the recipe for success right.

So what is Jack in the Box doing differently than its peers? For one thing, JACK is not only the owner of the Jack in the Box burger chain, but also owns and operates Qdoba Mexican Grill. Qdoba, which is a fresh Mexican fast-casual concept similar to Chipotle (NYSE:CMG), now accounts for more than 30% of Jack in the Box’s revenues.

Jack in the Box operates 2,250 Jack in the Box quick-service restaurants, including 431 company-owned locations and 1,819 franchise locations in 21 states and Guam. There are 638 Qdoba Mexican Grill fast-casual restaurants, including 310 company-operated and 328 franchise stores operated in 47 states, Washington DC, and Canada.

Jack in the Box stores reported a 3.9% increase in year-over-year same store sales, and Qdoba saw a 12.9% increase over the same time period. Increasingly, Qdoba has become the growth driver for the company and it seems to be eating Chipotle’s lunch! But both brands are successfully distinguishing themselves in the marketplace with their fresher, better-tasting, and innovative menu items. Jack’s margins are also benefiting from refranchising of Jack stores and repositioning of the brand at Qdoba.

Qdoba’s strong results have led to renewed speculation that Jack in the Box might spin-off the chain. If the company were to split into two different units, it could push the stock as high as $110 per share. This option helps justify the stock’s premium valuation.

Quite frankly, I am not sure JACK should spin-off Qdoba so soon. I think back to the fact that McDonald’s spun-off Chipotle eight years ago in 2006. That is a decision they may now regret. McDonald’s got just $1.5 billion for its stake in Chipotle. Since that time Chipotle stock has more than tripled.

But I digress, let’s go back and take another look at JACK!

Data from Best Stocks Now app

Jack in the Box is a small cap restaurant stock with a market capitalization of $3.7 billion. Its risk profile is considered Aggressive.

Data from Best Stocks Now app

The biggest knock on JACK is its valuation. As mentioned, it trades at a premium due to speculation it will spin-off its Qdoba chain. Its trailing P/E is 41 and its forward P/E is 29 at a premium to its 5 year annual growth rate of 15.6%. As a result, it receives a Value Grade of D-.

Data from Best Stocks Now app

Investors that have remained focused on the Qdoba growth story, the favorable economic environment for restaurants, and Jack in the Box’s record of execution have been rewarded. Over the last 12 months the stock is up more than 80%. Just YTD the stock is up 18%, far in excess of the S&P 500 or even the Russell 2000 for that matter. The stock has a Momentum Grade of A+ and a Performance Grade of A. There is no doubt about it, JACK has been a great stock to own!

Data from Best Stocks Now app

Out of 3900+ stocks in the Best Stock’s Now universe, JACK ranks #218. It is considered a Buy with a Stock Grade of A-.

Jack in the Box is a restaurant operator executing exceptionally well in the current economic environment. It is basically eating McDonald’s and Chipotle’s lunch. As a result, it has paid to know JACK and the stock should continue to reward investors going forward.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Bill Gunderson has a total average return of 8.3% and a 65.0% success rate. Bill Gunderson is ranked #435 out of 4234 Bloggers.