Papa John's Takes A Hit From Inflation And Updated Debt Balance, But Analyst Still Sees Long-Term Growth Potential

Stephens analyst Joshua Long reiterated an Overweight rating on the shares of Papa John's International, Inc. PZZA, lowering the price target to $90 from $95.
The analyst expects the company's international trends to remain under pressure, especially driven by the continued economic pressure in the U.K.
The analyst noted that the price target reduction particularly mirrors the company's updated debt balance of $805 million vs. prior $597 million.
In addition, the company faced commodity and wage inflation in 1Q. The analyst noted that food costs (+13%) and labor costs remained elevated during the quarter, which weighed on Restaurant-level margins.
Papa John's to leverage third-party delivery platforms (particularly at peak periods) to better balance consumer demand and operational execution in the face of ongoing labor and staffing pressures.
For FY23E, the analyst lowered the adjusted EPS forecast from $2.95 to $2.75. Adjusted EBITDA estimate is reduced from $222.9 million to $222.1 million. Higher G&A and interest expense drive the reductions, the analyst noted.
All that said, the analyst maintained a favorable outlook on the brand's strategic positioning, generally a higher-income customer base, and long-term growth potential.
Price Action: PZZA shares are trading higher by 1.34% at $77.56 on the last check Friday.