Stock of the Month: JACK IN THE BOX

The stock of the month for June is Jack in the Box (symbol JACK). This restaurant company has two main brands: Jack in the Box and Qdoba Mexican. The company is selling right now at just over 10 times estimated earnings for 2011. The Jack in the box concept is growing slowly, but Qdoba is expanding rapidly. Even with slow or no growth for Jack in the Box, the price earning multiple is low in this field. A high flying restaurant chain like Panera Bread is currently selling at 20 times estimated 2011 earnings by contrast. The reason for the recommendation, however, is twofold: first, the current valuation of the stock gives essentially no value to the Qdoba concept. At some point, management may decide to spin off Qdoba to shareholders or to sell it to another company. Either move should leave the value of the Jack in the Box portion of the company essentially unchanged. The Qdoba stock or profits would be on top of the underlying value. Second, and more likely, there could be a realization of the persistant rumors of sutors for the company. A sale of JACK at a price twenty five percent over the current market would still make the purchase accretive for nearly every large restaurant company. With numbers like that, the logic of the JACK purchase should soon lead someone to take the plunge and buy it.

I would be a buyer at any price up to $25

Disclosure: Long JACK