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

Pizza delivery chain Papa John's International, Inc. PZZA is stuck between a rock and hard place with few compelling options moving forward, according to Stifel.

The Analyst

Stifel's Chris O'Cull maintains a Hold rating on Papa John's with a price target lifted from $38 to $48.

The Thesis

Papa John's' outlook is "bleak" as Stifel's recent first-hand checks suggest third-quarter same-restaurant sales fell by 10 to 11 percent, which could have a notable impact to the commissary business which accounts for up to 30 percent of total EBITDA. Aggressive promotions appear to not have helped support sales decline and franchisees are likely demanding for continued royalty relief and reduced food pricing.

As such, O'Cull said the management team is in a tough position where it needs to evaluate the financial cost on its end to give franchisees more relief versus the cost of store closures and even lawsuits from franchisees. Of coarse, neither option is compelling which may suggest the board of directors are taking a closer look at quickly selling the company at an opportune time of heightened M&A deals in the restaurant sector.

While there's no evidence of ongoing M&A talks the list of hypothetical buyers is minimal and likely limited to a strategic buyer who can reduce G&A by absorbing support services into already existed brands.

Price Action

Shares of Papa John's were trading lower by nearly 1.5 percent to $53.25 early Thursday morning.

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Photo credit: Mr. BlueMauMau, Flickr