Placed among top five restaurant chains in the US QSR industry for burgers, Jack in the Box (NASDAQ: JACK) in terms of market share trails larger players such as McDonald’s Corporation (NYSE: MCD), Restaurant Brands International Inc. (NYSE: QSR) and the Wendy’s Company (NASDAQ: WEN).
Compared to peers, JACK has recorded the worst sales performance for the latest financial year, which was followed by calls from franchisees to remove the company CEO and increase the support given to them. Meanwhile, more than USD1 bn of debt repayment is scheduled to take place in FY20E, pressuring the company’s already perilous cash flow position.
Against this backdrop, its moderately high operating margin and fairly reasonable net debt to EBITDA ratio are expected to deteriorate. Trading with the lowest dividend yield and highest price to cash flow ratio among peers, forward PE of JACK is adequately discounted in relation to the average forward PE of its peers.
Operating in an industry where consolidation is gathering pace, a sudden announcement of an M&A deal involving JACK could drive up its share price as the company has already put itself up for sale.
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