Value Investing Congress Contest Winner Ryan Fusaro's Pitch on JACK

Contest Winner Ryan Fusaro from LionEye Capital pitches his long thesis on Jack in the Box Inc. (NASDAQ:JACK) as the final speaker at the 2012 Value Investing Congress.

Value Investing Congress Contest Winner Ryan Fusaro's Pitch on JACK

Ryan thinks Jack in the Box Inc. (NASDAQ:JACK) has a lot in common with MCD from 2005, an idea that Bill Ackman pitched at the 2006 Value Investing Congress. JACK is in the process of shifting business models away from a low-margin restaurant operations towards a higher-margin franchisor operation. Jack in the Box’s transformation is nearly complete, with the vast majority of location now owned by franchisees. The stable earnings and lower capex requirements make the franchisor business model much more attractive to investors. As a result, franchisor businesses command a higher valuation multiple in the market.

Embedded within Jack in the Box Inc. (NASDAQ:JACK) is Qdoba, a fast casual Mexican chain that is growing rapidly but not receiving the valuation that it deserves. Qdoba is largely overlooked or ignored by investors historically, but deserves to trade at the higher multiples of comparable fast casual competitors.

Fusaro believes Jack in the Box capital spending is misunderstood by the market. In the last few years the entire JIB store base was refreshed. This $250mm refresh program is now complete, and capex should return to more normalized levels. Going forward the majority of capex will be directed towards continued growth of the Qdoba brand.

Additionally Jack in the Box Inc. (NASDAQ:JACK) owns significant real estate assets which are overlooked by investors. With over 1,400 properties owned by Jack and leased to franchisees, Fusaro estimates a steady cash flow of $80mm+ from the real estate division that should be valued using the cap rate method.

On a sum of the parts basis, Fusaro believes JACK is worth $45 – $50 which provides 70%+ upside from the current price. The key catalyst for realizing the value is spinning off the Qdoba brand or realizing value in the real estate through a REIT. This would simplify the company, and provide more of a pure play investment.

LEAVE A COMMENT


X
Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers

0