Jack In The Box Surges On Sale Rumor

California-based fast food company, Jack in the Box Inc. (NASDAQ: JACK) has become an exclusive West Coast attraction, but may soon face significant alterations considering a new report from Reuters.

What Happened

Jack in the Box is exploring the possibility of selling the company, according to Reuters. In an effort to move forward, the company has spoken to potential buyers, which include private equity firms.

This news follows both the settlement with activist hedge fund Jana Partners and its correspondent agreement to expand the board, as well as the sale of the company’s Qdoba unit. That sale represented over 700 Qdoba restaurants amounting to $305 million.

Why It’s Important

This sale would contribute to the plethora of similar deals in the fast food sector this year. Burger chain Sonic was sold to Inspire Brands, and the future of Papa John’s Int’l, Inc. (NASDAQ: PZZA) remains uncertain as sale rumors circulate.

The possibility of a potential buyout shouldn't be overlooked, according to Baird analyst David E. Tarantino.

“Including today's move, valuation metrics for JACK (including NTM EV/EBITDA of 13.6X) remain considerably below the buyout multiple for Sonic (previously announced deal to be acquired by Inspire Brands for roughly 16X trailing EBITDA), which we believe represents the closest comparable for JACK," Tarantino said in a midday note.

“For perspective, a hypothetical buyout of JACK at 16X EBITDA would translate to roughly $115/share.”

Jack in the Box shares closed Thursday at $88.54, up 6 percent for the day.

Related Links:

A Restaurant Pair Trade: Jack In The Box Vs. Bloomin Brands

Stifel: Papa John's Story Is Now 'Takeout Or Delivery'

Photo courtesy of Jack in the Box.