Here's Why You Should Retain Papa John's (PZZA) Stock Now
Papa John’s International, Inc. PZZA is likely to benefit from menu innovation, digital initiatives and unit expansion efforts. This and the focus on identifying new markets and franchisee partnerships bode well. However, challenges in the U.K. market and inflationary pressures are a concern.
Let’s discuss why investors should retain the stock for the 1time being.
Factors Driving Growth
Papa John’s continues to focus on product introduction to drive growth. Menu innovations like toasted handheld Papadias and Epics Stuffed Crust continue to be popular among customers, boosting the top line. Backed by better brand positioning, the new products have driven higher tickets and traffic across dayparts without cannibalizing core premium products and complicating operations at other stores. During the third quarter of fiscal 2022, the company emphasized on crustless menu innovation with the launch of Papa Bowls and reported solid feedback with respect to the same. It also launched Pepperoni Crusted Papadia toasted, featuring more cheese and pepperoni as a limited time offering (LTO). With the emphasis on LTO and long-term platform launches in the pipeline, the company anticipates menu innovation efforts to drive long-term ticket and transaction growth in the upcoming periods.
Papa John’s invests in technology-driven initiatives like digital ordering to boost sales. The company’s online and digital marketing activities have increased significantly in the past several years, owing to the higher utilization of online and mobile web technology. PZZA is committed to providing a better customer experience with enhancements to the digital ordering process. The company’s loyalty program witnessed a rise in digital transactions during the third quarter of fiscal 2022. Larger transaction sizes and better targeting of offers and promotions have benefited the company. This and the emphasis on partnerships and integrations of third-party delivery aggregators bode well. The company remains bullish on third-party delivery partnerships as the initiative paves the path for additional opportunities to meet delivery capacity at peak times and reach new customer segments.
Papa John’s is committed to developing and maintaining a strong franchise system. The company strives to eliminate barriers to expanding in existing international markets and identifying new market opportunities. During the fiscal third quarter of 2022, the company signed a deal with a global franchisee – Levant, to add two new countries (with tentative store openings in the upcoming quarter and in fiscal 2023). The company intends to open more than 100 restaurants through the partnership. Meanwhile, the company marked its entry into a new market – Honduras, thereby expanding its footprint. With two successful store openings in the region, the company remains optimistic in this regard and anticipates opening more than 25 stores (in the market) over the next three years. The company anticipates its 2022 global development outlook to be between 240 and 260 net new restaurants. It expects its worldwide net unit (from fiscal 2023 through 2025) to increase between 1,400 and 1,800 net new units.
Concerns
Image Source: Zacks Investment Research
Shares of Papa John's have declined 38.2% in the past year compared with the industry’s 5.8% fall. The downside was mainly due to challenging macro environments, including softening economic conditions (in the U.K.), rising interest rates, looming European energy crisis and continued COVID-related lockdowns in China. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Papa John's is continuously shouldering increased expenses, which are detrimental to margins. It has been facing significant supply-chain challenges and inflation across most commodities and categories. This resulted in cost pressure in the third quarter of fiscal 2022, including costs related to strategic staffing initiatives. During the third quarter of fiscal 2022, total costs and expenses amounted to $490.1 million, up 3.4% from the prior-year quarter’s levels. The company anticipates commodities and labor headwinds to continue in the near term.
Zacks Rank & Key Picks
Papa John's currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail – Restaurants industry are Wingstop Inc. WING, Chuy's Holdings, Inc. CHUY and Chipotle Mexican Grill, Inc. CMG.
Wingstop sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have declined 6.3% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 16.4%, respectively, from the comparable year-ago period’s levels.
Chuy’s Holdings currently carries a Zacks Rank #2 (Buy). CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have increased 2.6% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.6% and 11.7%, respectively, from the corresponding year-ago period’s levels.
Chipotle currently carries a Zacks Rank #2. CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 12.8% in the past year.
The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.1% and 31%, respectively, from the corresponding year-ago period’s levels.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Papa John's International, Inc. (PZZA) : Free Stock Analysis Report
Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
