Jack in the Box's Got a Delicious Menu of Investing Options

Jack in the Box restaurants have an enviable long-term growth record. Despite that fiscal 2022 (which ends Oct. 2) will see an earnings per share dip from all-time record profits in 2021, JACK is still on pace to post its second-best year in history. Crazy market action so far this year has presented us with an incredible buying opportunity. Over the past seven years, EPS nearly doubled. Annual dividends grew by 72%. Based on that, you'd expect that the shares would have progressed nicely. Instead, as of Tuesday, the stock was 38.2% cheaper that before those great improvements to fundamentals. Getting more while paying less is a fine concept. Over the full decade since 2012, JACK's numbers are even more impressive. EPS and dividends both more than quadrupled. Continuous shareholders did well, capturing total returns of 166.4%, but that paled in comparison to the value created. Buyers at today's price have every reason to believe JACK is primed for a major catch-up move higher to arbitrage away the disparity between the stock's current value and price. What is Jack really worth? From 2012 through 2021 the stock fetched around 20.5-times earnings on average. A typical yield ran about 1.61%. As of Tuesday's close at $62.32, JACK was offered for just 10.5-times fiscal 2022's EPS and 9.1-times 2023's expected results. Throw out the momentary Covid-panic low and Jack in the Box has never been more cheaply valued. Today's buyers are also getting a well above normal 2.82% current yield. Assume a conservative 17-times multiple on forward EPS, and you'd come up with a 16-month target price of $116.79. That implies total return potential of more than 90% by October of 2023. Reverse engineering the annual rate to a more normalized 1.61% implies a similarly excellent $109.32 price target. Total return to that slightly lower goal would be about 78%. Both figures appear well within reach. JACK changed hands as high as $93.10 to $124.55 during each of the past eight years. Only 2021 saw EPS higher than what is now projected for fiscal 2023, which ends Oct. 1 of that year. JACK peaked at $100 on the button in March of 2015 at 33.1-times earnings. It topped out at $113 during 2017 when EPS were destined to reach only $3.88. Yahoo Finance call for JACK to be $93.56 by this time next June. Their goal might prove too conservative as it implies just 13.6-times forward earnings. Simply reaching that price would deliver a very acceptable 52.9% over the coming 12 months. Research house Morningstar is more in line with my own view. They deign to provide year-ahead target prices but do let us know what they feel JACK is worth right now. That number sits at $88.65, greater than 42% above JACK's current quote. That qualified the stock for a four-star, out of five, Buy rating. A further dip to $58.15 or below would send it into five-star territory. Option-minded traders might wish to consider selling long-term puts on JACK to pocket outstanding premiums while also giving plenty of time for the market to get back to normal. JACK's sales, dividend rate and EPS are all expected to be quite a bit higher by then as well. Actual prices on JACK's Jan. 19, 2024 expiration date puts at strikes from $65 to $80, with the stock at $62.32, are shown below. Worst-case, forced purchase prices ranged from $52.00 to $57.50 depending on the strike price(s) employed. Future stock market action can never be guaranteed. That said, I can say with authority that owning JACK at any of the if exercised prices would have been a winning position 100% of the time dating back to before June 1, 2020 during the heart of the Covid-panic. Note, too, that fiscal 2020 EPS finished at $4.65, while fiscal 2023 EPS are expected to hit $6.87. On an absolute basis, Jack in the Box is worth much more today than it was two years ago. Jack in the Box is a fine growth company now available at a decidedly non-growth valuation. Upside is substantial. Its yield is historically generous. Buy some JACK shares, sell some JACK in-the-money puts or consider doing both.

Jack in the Box's Got a Delicious Menu of Investing Options

Dig in as this restaurant name should surprise to the upside.

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