PZZA Our Data-Driven Checks Lead to Updated Q4E Forecasts
Based on our recent, data-driven checks, we raise our Q4E 2018 North American same-store sales forecast for Papa John’s (PZZA; Buy) by +330 basis points, to -5.5%. This places us 150 basis points better than sell-side consensus, according to Consensus Metrix data. Also, best-case, some further update may be possible when Papa John’s reports its Q4 results (likely report date late February), as our checks actually came in somewhat better than our -5.5% updated forecast. We hear that a good portion of December 2018 in particular was helped by promotional activity, an encouraging sign that while the business is still clearly hampered by self-inflicted wounds, the worst is likely over. Indeed, it does seem that Papa John’s the brand was in the news for all the wrong reasons during Q3 2018, but that the media largely moved on to other narratives during Q4 2018. This is good news for the Papa John’s brand, the company, its employees, the brand’s franchisees and their employees, and the many other stakeholders involved — including PZZA shareholders. With PZZA shares down by about -28% (to their closing price of $42.63 as of 1/9/19) since their recent closing high of $59.04 this past November 15th, the business on the road to recovery, and refranchising opportunities available (with Papa John’s North American store base 19.3% company-owned as of the end of Q3 2018), the rewards outweigh the risk, and we keep our Buy rating on PZZA. We note the following: