Current Price: $35.82 (as of market close on March 3, 2025)
Target Price: $101
3 - 5 Year IRR Projection: 23 - 41%
Jack in the Box (NASDAQ: JACK) is a fast-food chain known for its cheap late-night tacos and “breakfast for dinner” menu. Most of Jack in the Box stores are franchised like McDonald’s and many other quick service restaurants. You can read more about the unit economics of Jack in the Box franchises on the company website.
Right now, Jack in the Box stock looks ugly due to macro headwinds in the quick service restaurant industry and an acquisition that the market has not liked. Moreover, the CEO recently departed. In this article, I’ll explain what has created this contrarian opportunity and why I think Jack in the Box shares are a bargain at current prices. To quote John Maynard Keynes, “The central principle of investment is to go contrary to the general opinion.”
What has Created this Contrarian Opportunity?
Jack in the Box has fallen on hard times recently. There has been a softening in fast food spending across the industry as prices and inflationary pressures have risen in recent years. In response, Jack along with competitors such as McDonald’s, Burger King, and Wendy’s have been focusing on the “value menu.” Additionally, Jack in the Box’s acquisition of Del Taco has not been well received by investors and the company reported a loss of $1.87 per share for 2024 due to a one-time, non-recurring $162.6 million goodwill impairment charge. This was the first loss that Jack in the Box has reported for more than 16 years and had previously reported positive EPS in every year going back to 2008, according to a Value Line report. I think the market is overly pessimistic on Jack in the Box and the shares are heavily discounted. Jack in the Box is in the process of refranchising many of the Del Taco stores which should enable them to be run more efficiently by independent owner-operators. Another headwind is the fact that California (where 45% of Jack’s locations are) hiked its minimum wage for fast food workers in 2024. According to a recent Value Line report, “In response, the company, along with competing chains, hiked menu prices, but has been unable to fully offset the resulting margin pressure. We expect this headwind to persist into the new fiscal year, though JACK does see opportunities to rebuild restaurant-level margins over time by boosting sales and making better use of equipment and technology to reduce costs.”
Recent Quarter
Jack in the Box Inc. recently reported financial results for Q1 2025, with Jack in the Box reporting same-store sales growth of 0.4%, while Del Taco saw a decline of 4.5%. Systemwide sales increased slightly for Jack in the Box (0.5%) but fell for Del Taco (-1.9%). The company reported diluted EPS of $1.75. Jack in the Box is continuing its expansion efforts, securing agreements for two new franchisees in Chicago along with eight company-owned restaurants set to open in 2025. Jack is also working on increasing its technology to reduce costs, with nearly 1,000 restaurants implementing a new POS system.
Valuation
Among the 20 analysts covering Jack stock, the consensus EPS estimates for 2025 is $5.33, which would imply roughly 7x forward price to earnings based on current price levels around $36. Jack’s management did not give annual guidance for 2025 EPS but based on the first quarter EPS of $1.75, that would imply a $7 EPS based on annualized run rates. However you slice it and dice it, Jack in the Box stock is cheap and trading at a substantial discount to normalized P/E levels.
According to Value Line, Jack’s median price to earnings has been roughly 19 over the last 10 years. Putting a 19x multiple on the average 2025 EPS estimate would imply a $101 fair value. ($5.33 x 19). This represents more than 170% upside from current prices.
Dividend
Jack currently pays close to a 5% dividend yield based on current prices. The company recently declared a $0.44 dividend (which implies annualized dividend of $1.76). Based on 2025 EPS projections around $5.33, the implied payout ratio is about 33% which is sustainable, and I think the dividend should be safe. Jack has paid a dividend every year since 2014.
Conclusion
I believe Jack in the Box has staying power and will be around for a long time due to their unique marketing and menu offerings. As previously mentioned, Jack is looking to expand in untapped markets such as Chicago and there are still growth opportunities for Jack. Jack in the Box offers breakfast, lunch and dinner at all times of the day and I believe there will always be demand for quick and cheap fast food even if it’s not the healthiest option. Jack in the Box shares haven’t been this cheap since the Covid-19 selloff in early 2020 when everyone wondered if people would ever go back to a fast-food restaurant. Trading at less than 7x forward earnings (with a close to 5% dividend yield to boot), Jack in the Box stock should offer investors a good long-term return. If Jack shares can return to their normalized earnings multiple, I project 3 - 5-year return projections of at least 20% annually if bought at current prices. There are always risks with stock ownership and investors should allocate their capital according to their risk tolerance. If I have learned one thing in investing, it’s that you don’t get paid to be comfortable and to do what everyone else is doing. Yes, there is a lot of pessimism surrounding Jack shares for the reasons previously mentioned. However, being willing to be a contrarian gives investors a higher likelihood of outperforming the market over time.
Full disclosure: I own Jack in the Box shares and Jack currently represents about 18% of my portfolio.