PZZA Updating Our Rating on Papa John’s to…

By Mark Kalinowski Published on June 26, 2019 at 12:00 AM

Sometimes fighting the trend is futile, and perhaps this is one of those times — we downgrade the shares of Papa John’s (PZZA) today to Neutral (from Buy), cutting our losses. While we still believe that the Papa John’s brand will be turned around in the long run, near-term risks have noticeably increased from where we sit, and the downgrade is warranted based on: (1) the possibility that founder John Schnatter could seek to sell more of his 19% holding in PZZA once his lock-up expires on August 19th, (2) the possibility that Papa John’s may seek to take on additional debt to fund part/all of the $80 million worth of additional investments announced less than a week ago (thus potentially leading to higher interest expenses; we take down our 2020E EPS estimate by $0.10 to $1.60, placing us $0.08 below sell-side consensus according to Consensus Metrix), and (3) the possibility that the recent $80 million investment announcement may hint at greater franchisee financial difficulties than we had previously been presuming. Even taking into account the stock’s decline over the last few business days, with some additional selling pressure possible starting in mid-August should Mr. Schnatter decide to sell more of his what used to be a 31% stake in PZZA, it appears best to be on the sidelines for now. We note the following:

PZZA Here’s the Restaurant Company that Papa John’s Should Emulate

By Mark Kalinowski Published on November 5, 2018 at 12:00 AM

Although our Buy rating on Papa John’s (PZZA) is mostly predicated on the possibility that the company is acquired by a possible suitor — for example, on October 30th, Reuters reported that “Bain Capital and CVC Capital Partners are among the private equity firms competing to acquire Papa John’s” — there are multiple other paths to meaningful upside for the stock. We write this brief report to suggest one other path to meaningful upside, if an acquisition of PZZA fails to materialize. (We still believe the odds of an acquisition over the next 12 months or so are greater than 50/50.)