Papa John's CEO Departure Is A Surprise, Says Analyst

BMO Capital Markets analyst Andrew Strelzik reiterated an Outperform rating on the shares of Papa John’s International Inc PZZA and lowered the price target from $90 to $80.

Yesterday, PZZA announced that CEO Rob Lynch would depart on April 30 to assume another CEO position, with advisory support through April.

The analyst is surprised with Lynch’s departure as he led PZZA’s recovery over past 4-5 years, moved HQ to Atlanta recently and also instituted major strategic actions.

Related: Shake Shack Taps Papa John’s Top Executive As New CEO

The departure adds to a growing list of leadership changes over the last year, including prior CFO, COO, Chairman of the Board and Chief Development Officer/COO of International.

The company’s interim CEO Ravi Thanawala joined less than one year ago from outside the restaurant industry.

Lynch’s departure comes at a time when Papa John’s faces competitive pressures from Domino’s Pizza Inc DPZ, unit growth pressures, challenges in its largest international market (U.K.), and questions about implications for franchisee economics from recent initiatives, noted the analyst.

The CEO departure is likely to create questions about the potential of the initiatives to drive performance until there is greater evidence, the analyst mentioned.

Though the CEO transition creates the risk of earnings rebase to position for stronger long-term performance, the analyst notes a fresh perspective may not be a bad thing for the brand’s efforts to reinvigorate sales momentum.

Recognizing near-term challenges, the long-term opportunity to capitalize remains compelling, and shares are undervalued, concluded the analyst.

The analyst lowered the price target after trimming multiple assumptions for increased uncertainty, including leadership changes, comp trajectory, and potential earnings rebase under eventual new leadership.

Price Action: PZZA shares are trading lower by 3.60% at $65.79 on the last check Friday.

Photo via Wikimedia Commons