Consumer Discretionary - Restaurants
Buy the dip: strategic plan, a number of shorts and the institutional interest.
Supporting Arguments
Jack in the Box, Inc. (NASDAQ: (JACK) operates of two chains of quick-service and fast-casual restaurants, with a total number of 2,600. The Jack in the Box segment offers a classic burgers. The Del Taco segment focuses on both Mexican and American. The company was founded in 1951 and is headquartered in San Diego, CA.
Investment Thesis
Strategic transformation plan. The company grew its revenue at a double-digit rate in 2021–2023, but since last year, revenue has been declining. The debt burden has begun to grow and has reached a critical level of more than $1.7 billion, or 5.1x LTM EBITDA. Amid the problems, the CEO resigned.
The company announced a restructuring plan, which includes closing 150–200 unprofitable restaurants, and selling the Del Taco chain entirely to reduce debt by $300 million is not ruled out. It is also planned to increase online sales from the current 12.5% to 25%. The EBITDA margin of the online segment is planned to increase to 15%.
A large number of short positions and a dividend. Short interest is 4.48 million shares, or about 25% of shares in free float and 5 average daily trading volumes. Closing the short may lead to a strong short-term increase in quotes. The dividend yield is about 6%, however, due to the need to save, it cannot be ruled out that the company will cut the dividend in the near future.
The interest of a large investor. The company's capitalization is $420 million, it has not been so cheap since the COVID-19 pandemic, and before that in the early 2010s. Quotes have fallen almost 5 times from the maximum, which creates a good opportunity for a takeover by a large player. The Biglari Capital Corp. fund, which controls almost 10%, has already taken advantage of the stock correction and intends to increase its share. However, the Board of Directors is currently taking measures to counter a hostile takeover, hoping to cope with the crisis on its own.
We recommend to BUY a JACK shares with the target price of $935, which implies a 60 upside. To mitigate potential losses, it is advised to implement a stop-loss at $16.90.
Buy the dip: strategic plan, a number of shorts and the institutional interest.
Supporting Arguments
- Strategic transformation program.
- Large number of shorts and high dividend yield.
- Interest of a large investor.
Jack in the Box, Inc. (NASDAQ: (JACK) operates of two chains of quick-service and fast-casual restaurants, with a total number of 2,600. The Jack in the Box segment offers a classic burgers. The Del Taco segment focuses on both Mexican and American. The company was founded in 1951 and is headquartered in San Diego, CA.
Investment Thesis
Strategic transformation plan. The company grew its revenue at a double-digit rate in 2021–2023, but since last year, revenue has been declining. The debt burden has begun to grow and has reached a critical level of more than $1.7 billion, or 5.1x LTM EBITDA. Amid the problems, the CEO resigned.
The company announced a restructuring plan, which includes closing 150–200 unprofitable restaurants, and selling the Del Taco chain entirely to reduce debt by $300 million is not ruled out. It is also planned to increase online sales from the current 12.5% to 25%. The EBITDA margin of the online segment is planned to increase to 15%.
A large number of short positions and a dividend. Short interest is 4.48 million shares, or about 25% of shares in free float and 5 average daily trading volumes. Closing the short may lead to a strong short-term increase in quotes. The dividend yield is about 6%, however, due to the need to save, it cannot be ruled out that the company will cut the dividend in the near future.
The interest of a large investor. The company's capitalization is $420 million, it has not been so cheap since the COVID-19 pandemic, and before that in the early 2010s. Quotes have fallen almost 5 times from the maximum, which creates a good opportunity for a takeover by a large player. The Biglari Capital Corp. fund, which controls almost 10%, has already taken advantage of the stock correction and intends to increase its share. However, the Board of Directors is currently taking measures to counter a hostile takeover, hoping to cope with the crisis on its own.
We recommend to BUY a JACK shares with the target price of $935, which implies a 60 upside. To mitigate potential losses, it is advised to implement a stop-loss at $16.90.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.