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Papa John's on Expansion Spree, Opens Restaurant in Portugal

Zacks Equity Research

In a bid to drive sales, Papa John's International, Inc. PZZA continues to expand its global footprint. Recently, the company opened a restaurant in Portugal. This new restaurant is situated in Lisbon, in the Amoreiras zone.

Notably, the latest restaurant was opened under Papa John’s master franchise, Drake Food Service International, in the Iberian Peninsula, Chile, Panamá, and Costa Rica. The latest move underscores Papa John’s two basic strategies of continual international expansion and increased focus on franchising.

Strategic Expansion & Focus on Franchising to Propel Growth

Although Papa John's earnings, revenues and comps have been declining over the last few quarters, we believe the company’s expansion efforts will help to bounce back. Currently, it operates in 48 international countries and territories.

In the past three years, the company had set foot in 12 new countries, which includes France, Spain, Tunisia, Iraq, the Netherlands, Morocco, Kazakhstan, Kyrgyzstan, Poland, Bahamas, Pakistan and Portugal. Papa John's is also looking forward to possible franchisees in Brazil, Australia, Taiwan and Southeast Asia.

Furthermore, Papa John's has inked developmental agreements in many regions including Mexico, Egypt, Russia, Spain, Chile, the Netherlands, Colombia and Boston. It also debuted in France and Israel in 2018 and in Morocco in 2017. By 2021, the company plans to open five units in the Bahamas.

These apart, Papa John’s is committed to develop and maintain a strong franchise system. In order to expand in existing international markets and identify new market opportunities, the company is consistently trying to eliminate barriers. Over the next several years, Papa John’s plans to increase its international units, a major portion of which will be franchised.

We believe re-franchising a large chunk of its system reduces a company’s capital requirements and facilitates earnings per share growth and ROE expansion. Alongside, free cash flow continues to grow, allowing reinvestment for increasing brand recognition and shareholder return.

In the past three months, shares of this Zacks Rank #3 (Hold) company has gained 19.1% compared with the industry’s 3.7% growth.

Key Picks

Better-ranked stocks worth considering in the same space include Cracker Barrel Old Country Store, Inc. CBRL, Jack in the Box Inc. JACK and Shake Shack Inc. SHAK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cracker Barrel Old Country Store, Jack in the Box and Shake Shack have an impressive long-term earnings growth rate of 10%, 13% and 22.5%, respectively.

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