Papa John's Near-Term Outlook Too Appealing To Ignore, Analyst Upgrades To Outperform

Wedbush analyst Nick Setyan upgraded Papa John's International Inc PZZA to Outperform from Neutral at an increased price target of $95 from $80.

This week, the company reported a Q2 FY23 revenue decline of 1.6% Y/Y to $514.53 million, missing the consensus of $530.10 million, and adjusted EPS of $0.59 was in line with the Street view.

Setyan thinks PZZA's competitive entry into 3PD (Little Caesars; Pizza Hut) resulted in the growth of the overall 3PD pizza category and expects an incremental focus on value to boost overall pizza category expansion to meet or exceed 2024 comp expectations.

The analyst believes in the management strategies of menu innovation at compelling national price points and more effective "revenue management," as well as promotional activity within the loyalty base (85% of transactions are digital). 

The analyst expects improved near- to medium-term same-store sales (SSS) growth, a potential for margin expansion from recent lows, and annualized system sales growth in the medium- to longer-term.

Setyan reduced estimates for revenue to $2,170.7 million (from $2,179.8 million) for FY23 and $2,277.8 million (from $2,292.2 million) for FY24.

Meanwhile, the analyst raised EPS estimates to $2.72 (from $2.70) for FY23 and $3.14 (from $3.13) for FY24. 

Also Read: Papa John's Reinvents Itself: Analyst Breaks Down Frustrations Outlines Opportunities

Price Action: PZZA shares are trading higher by 1.92% at $77.16 on the last check Friday.