Jack in the Box is the stock of the month for August. This company consists essentially of two restaurant chains, Jack in the Box and Qdoba. Although sales and profits have been stagnant in the last two years, the company still produces large profits and sells for a low Price/earnings multiple of 10.7 times expected 2010 earnings and only 9 times expected 2011 earnings. The Qdoba Mexican chain is growing rapidly but it is much smaller than the Jack in the Box chain.
The main reason for this selection, howeever, is the news today that Blue Harbor Investments has recently purchased over 5% of the stock of the company. The 13D was filed with the SEC this morning and the announcement of the filing sent the stock up about half a dollar when it was released. Blue Harbor is an activist investment group that is always pushing management to do things to maximize shareholder value. Blue Harbor may very likely push JACK to spin off the Qdoba chain in the near future. That would be a win-win for shareholders and the company. Right now, the nmarket is not rewarding JACK for the rapid growth of the Qdoba chain. If it is spun off, Qdoba will receive a proper valuation and should make the combined package of JACK and Qdoba stock worth substantially more than the current stock price.
I think that the long range prospects for JACK are good and, accordingly, it is the stock of the month for August.
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