Jack In the Box would net $223M from the sale of Qdoba
After Qdoba sale, Jack in the Box’s free cash flow would rise to 6%
The shares of fast food chain owner Jack in the Box (JACK) are climbing after Wells Fargo upgraded the stock and Oppenheimer said the company’s risk/reward ratio will be “intriguing” if it can sell Qdoba.
Jack in the Box announced on May 17 that it was exploring strategic alternatives for #Qdoba, it’s burrito chain.
Wells Fargo analyst Jeff Farmer upgraded Jack in the Box to Outperform from Market Perform, arguing that the stock does not fully reflect the benefits that the company will obtain from selling Qdoba.
Estimating that the company would net $223M from the sale of Qdoba, the analyst predicted that it would repurchase $423M of its stock in the wake of the deal, lowering its share count by 14%.
Moreover, following a deal, $Jack in the Box’s EBITDA margin would increase by 10.5 percentage points and its return on invested capital would rise by over three percentage points, Farmer estimated. He raised his price target on the shares to $125 from $114.
The risk/reward ratio of Jack in the Box’s stock is “intriguing,” assuming the company sells Qdoba, contended analyst Brian #Bittner.
Selling Qdoba would enable Jack in the Box to more effectively lower its costs and debt levels, Bittner believes.
After unloading Qdoba, Jack in the Box’s free cash flow would rise to 6% before share buybacks, versus the average of its peers of 4%-5.5%, the analyst stated.
Additionally, Jack in the Box can benefit from its delivery initiatives and discount deals, as well as commodity inflation that could force its competitors to scale down their discounts, Bittner believes. He kept a $125 price target and an Outperform rating on the shares.
PRICE ACTION: In midday Friday trading, Jack in the Box (JACK) rose 2.3% to $109.32. Note that the quick service restaurant sector has been outperforming other parts of the Restaurant sector.
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.