Papa John's Deserves An Expanding Multiple, Wedbush Says In Bullish Initiation

Pizza chain Papa John's Int'l, Inc. PZZA deserves credit for rolling out a turnaround plan that started to show signs of success prior to the COVID-19 pandemic, according to Wedbush.

The Papa John's Analyst: Nick Setyan initiated coverage of Papa John's' stock with an Outperform rating and $95 price target.

The Papa John's Thesis: First-quarter comps prior to the third week of March were tracking at around 7%, one-third to one-half of which was due to recent menu innovation, Setyan said in the Tuesday initiation note. (See his track record here.) 

Menu innovation was not top-of-mind under ex-CEO John Schnatter's leadership, but is now a focus under Rob Lynch, the analyst said. 

In a normalized, post-coronavirus universe, Lynch could introduce new products every two months at compelling price points, he said.

This should not only help drive higher attach rates, but appeal to customers who want something beyond a pizza — and help improve lunchtime sales that account for around 20% of total mix, Setyan said. 

Papa John's is expected to "conservatively" show flat same-store sales growth in 2021 and 4% in 2022, followed by sustainable mid- to high-single-digit same-store sales growth afterward, the analyst said. 

The drivers of same-store sales growth include the following, he said:

• Continued menu innovation. 
• Better retention of digital customers.
• Third-party delivery channel growth.
• Superior brand equity through marketing initiatives.

PZZA Price Action: Shares of Papa John's were trading higher by 1.98% at $80.98 at the time of publication Wednesday. 

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Photo courtesy of Papa John's.