Jack in the Box Still Looks Tasty

With McDonald's (MCD)and Yum Brand's (YUM) moving up in tandem and Burger King (BKC) trading higher, Jack in the Box (JBX) is getting left behind. It has fallen to a new 52 week last week of $24.50. For the long-term I still like this company, especially stacked up against its peers valuations.

Why not buy Mcdonald's on the strength of the stock? I do realize McDonald's has been running very well recently. I just don't like the price. Do you remember just a few years back when investors had practically given up on them? The menu was horrible, nothing innovative was happening and they were on the slow road to boring growth. When Mcdonald's founder, Ray Croc, was struggling early on in the company's history, he hired Sonnenborn who focused on franchising. Pretty soon 50% of McDonald's profits came from franchising and Mcdonald's was saved from a looming bankruptcy. It doesn't take tremendous changes to turn around companies with strong brand recognition nowadays. That is a good lesson to learn. Companies with "wide moats" or durable competitive advantages can be turned around. Jack in the Box has had some major speed bumps over the years and always come through. Jack in the Box is about three years into a make-over. Jack in the Box has been improving their image with a great ad campaign and is a better company now than it was two years ago.

At the fourth quarter earnings call in November, Jack in the Box CEO Linda A. Lang affirmed the company's long-term vision which included "expanding, franchising and improving our business model." Growth with Jack in the Box and Qdoba has been great. Jack in the Box stores had "their highest full year increase in same-store sales since 1999 and the two-year cumulative increase of 10.9% is among [their] highest ever."

Jack in the Box should earn $2.05 per share in 2008, putting it at a PE ratio of 12 and an earnings yield of 8% at a share price of $25.27. I anticipate growth ahead to be between 12 and 14%, making Jack attractive at these market prices. The company has done a very good job of keeping escalating commodity costs in check and Qdoba is the the secret weapon.

The price you pay determines your return. The lower you buy, the the better the return when you sell at the higher price. Jack in the Box is getting it done with their operating results, one-of-a-kind diverse menu items, guest satisfaction and productivity. At current market prices, Jack in the Box looks like a great buy.

Disclosure: no position in McDonald's (MCD), Yum Brand's (YUM), Jack in the Box (JBX), Burger King (BKC)