Be Careful What You Ask For - JACK!?!?
A year ago I thought it was fun that Bobby Kennedy Jr. was shaking up politics, now as he looms as HHS Secretary, I worry about his effect on my portfolio.
If he really “makes America healthy again”, it might be a good time not to own hamburger and/or pizza stocks. It is no accident that Sweetgreen (healthy and bad tasting food) has already quadrupled this year.
It is fine to be a contrarian, but who knows what this semi-maniac might try. Banning fast food advertising would actually be a pretty damn good idea. The Libertarian in me hates this, but the trillions spent on health care make me at least consider the idea.
It also bothers me that these companies are spending too much time of making better “apps”, and not better tasting food. I am not confident restaurant mangers will be good at tech. In fact, I am scared to death.
I have lived through many cycles of the fast food business. Recently same store sales have been poor, so now is usually the time to own these stocks, but I do have nagging concerns.
Here are the reasons I like JACK:
they still have room to grow, Salt Lake City and Louisville going great, and new stores are planned in Chicago and Michigan, Florida is next, find me another stock under 10x times that can tell that story, they added more new stores this year than any time in the last 10 years, franchisees seem excited
Del Taco has been under-managed and still has new territories, burritos are cheaper than Chipotle, but Del Taco still has good value items for the masses
balance sheet is a little stretched, but still managing to make small buybacks
great late night food for those chewing on too many gummies, breakfast all day too
JACK has been slow into digital, so maybe this could help in 2025, but will they get the tech right?
Let’s compare JACK to other under-performing restaurants:
Krispy Kreme - DNUT - $11 - just getting started with McDonald’s rollout, plans to go from 16,000 doors to 50,000 doors, maybe too ambitious, Ron Barron owns 6%, he is good at these stories, what could be less healthy??, can they build the distribution system??, I want to believe, but hard to understand the economics of the MCD deal
Papa Johns’s - PZZA - $50 - 3.5% yield, Dominos has turned things around, but these guys are still struggling, new management (CEO from Wendy’s) started in August 2024, big Investor Day on December 12th, significant issues with Door Dash and Uber Eats, these guys use better ingredients than Domino’s but that is not paying off right now, significant international opportunities, could burn down the fourth quarter and start anew in 2025, T Rowe Price owns 10% and River Road 7%, that’s interesting, let’s listen 12/12
Arcos Dorados - ARCO - $8 - McDonald’s franchisee is Latin America, headquartered in Uruguay, currency issues, interesting special situation, need to learn more, franchisee economics are tough
Portillo’s - PTLO - $12 - busted growth stock, great food and service, but still 2x sales, “born of a jackal” (came from private equity), down 75% from original offer, is that enough?, above average food, great drive thru experience, when will they roll out ribs?
First Watch - FWRG - $19 - big PE shareholder still selling, stock has bounced off $14 to $19, now 2x EV/Sales, watching carefully, great food and concept
Bloomin Brands - BLMN - $14 - the 7% yield has me spooked, only 9x and short interest back under 10%, decent food but old locations, reminds me too much of Ruby Tuesday disaster
Cracker Barrel - CBRL - $55 - proxy fight failed, new management kind of doing the right stuff, not many expansions plans, boring, pass
Restaurant Brands Int. - QSR - $70 - Burger King, Tim Horton’s and Popeye’s, chance to get a great operator and an Ackman favorite at a perhaps reasonable 21x, maybe we should pay up for quality, looking for another bad quarter
Wendy’s - WEN - $18 - 5% yield, perpetual restructuring and activist fights, breakfast still shaky, pass
Dine Brands - DIN - $35 - IHOP and Applebee’s, 6% yield, down from $100, leveraged. pass
Wingstop - WING - $329 - growth story starting to get bumpy, valuation is crazy, pass but watching
RCI Hospitality - RICK - $52 - intense in person research will be necessary, strip clubs are the main business, acquisitions pace has slowed, management seems honest, down from $93, but profitability has been illusive
Darden - DRI - $176 - 19x and near an all-time high, great operators, pass
McDonalds - MCD - $297 - despite problems, 25x and near the all-time high, pass
I love the simplicity of restaurant stocks (so does Bill Ackman), but maybe other consumer discretionary ideas might be better.
Maybe:
Etsy (do we need more junk?)
Vail Resorts (will it snow again?)
Oxford (is Tommy Bahama a fad?)
Coty (can you trust women???)
Polaris (too much like BC?)
Hasbro (what are the game cycles?)
Yeti (have the competitors arrived?)
LKQ (are we having fewer crashes?)
Dollar General/Macy’s (are the stores too dirty?)
Ford/Borg Warner (consumer credit?)
Or maybe abandon the over-leveraged consumer altogether, and find some great natural gas or oil service ideas. Maybe Atlas Energy or Devon
Thinking out loud can be messy.
After experimenting with living in Florida and Las Vegas, I have returned to suburban Dallas, really Arlington. Go Rangers ??!?