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Jack in the Box's secret is real estate: Analyst

The fast-food company Jack in the Box's secret is its control of real estate, said Wunderlich Securities Robert Derrington. (Tweet This)

During an interview with CNBC's Power Lunch, Derrington said Thursday that contrary to the actions of chains such as McDonald's, which owns real estate, Jack in the Box leases.

"So that really enables them to not only keep their earnings relatively stable and growing as well as great cash flow to be able to return to investors either through their increased dividend or share repurchase program," said Derrington.

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Jack in the Box restaurant in Los Angeles, Calif.
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Jack in the Box restaurant in Los Angeles, Calif.

Franchise owners of Jack in the Box are charged 9 percent of their sales to help cover the leasing costs, Derrington said.

Jack in the Box's rental income was $52 million in the second quarter of 2015, compared with $49 million in the same period of last year. The company also increased its quarterly cash dividend by 50 percent, compared to the previous quarter, to $0.30 per share, according to the company's second-quarter earnings release.

"The good news is, as franchise comps increase, so too does their revenue but their cost factor levers down as a percentage," said Derrington.

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Wunderlich Securities has a "buy" rating and a stock price target of $100 for Jack in the Box, which also owns the Qdoba chain.

"My suspicion is that the company understands and controls that lease and in their refranchising of those restaurants to the franchisees, any escalation clauses are covered," answered Derrington when asked about potential risks.