Earlier today, Domino’s reported that its Q3 EPS came to $2.49, short of our $2.79 forecast and sell-side consensus (according to Consensus Metrix) of $2.78 (which had been at $2.73 as recently as eight days ago).
Earlier today, Papa John’s (PZZA; Buy, $99.14) reported adjusted Q2 EPS of $0.48, coming in meaningfully above our $0.35 forecast and sell-side consensus of $0.44. We had been concerned that costs related to franchisee assistance — which amounted to a -$0.12 hit in Q2 — would hold back Q2 earnings, but the strength of the business (North American same-store sales up a previously-announced +28.0%) more than made up for this. Built into our Q2E estimate heading into today was an EPS hit of -18 cents related to franchisee assistance, so even specific to Q2, this came in +6 cents better than we expected.
With this report, we change our rating on Yum Brands (YUM; $85.61) to Neutral (from Buy). This change largely reflects the following factors: (1) currencies that may work against Yum’s earnings over the remainder of 2020, (2) other costs that may creep up in Q2, (3) the possibility of store closures hurting Q2 by more than the Street anticipates, (4) possible same-store sales issues at Taco Bell, and (5) YUM shares’ +55% rise off of its 52-week low, which has allowed it to come within less than 50 cents of our $86 target price (which we now move to “NA” with this report. We note the following: