By Mark Kalinowski Published on February 5, 2019 at 12:00 AM

We downgrade the shares of Papa John’s (PZZA) to Neutral (from Buy). Our ratings change reflects the following: (1) our original upgrade to Buy reflected the possibility of Papa John’s being acquired; that possibility seems resolved with it unlikely to happen (albeit with the silver lining of yesterday’s news of Starboard’s $200 million strategic investment, which helped the shares up by about +9% yesterday), (2) our view that the business was getting “less bad” in Q4 and likely to show further improvement in early 2019, which is undercut by the news yesterday that North American systemwide same-store sales declined by -8.1% in Q4 2018 and by -10.5% in January 2019 (technically, December 31, 2018 through January 31, 2019), (3) our evolving view on the likelihood of meaningful refranchising, which we cannot rule out in the long run — but which appears to be getting less likely in the short- and medium-term given the recent business results, and (4) PZZA shares’ +5.4% year-todate performance even in the face of poor fundamentals — sometimes it’s best to take a gain when a gain can be had, even if it’s not what we had hoped for when we originally upgraded PZZA to Buy. We note the following:

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