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Papa John's (PZZA) Founder to Step Down From Board, Stock Up

Zacks Equity Research

Papa John's International, Inc.’s PZZA founder John Schnatter has agreed to step down from the board. Per the agreement, Schnatter, owner of 31% of Papa John's shares, will cooperate with the company to find an independent director who will take over the reins.

Following the news, shares of the company gained 5% on Mar 5. However, in a year’s time, the stock has lost 22.6% against the industry’s 19.3% rally.

Papa John's will also eliminate a provision of the company’s 'poison pill' plan, which was implemented in July 2018. The provision restricted its shareholders to communicate with each other. Schnatter said that “I founded Papa John’s, built it from the ground up and remain its largest shareholder. I care deeply about its employees, franchisees, and investors and am thankful that I’ve been able to resolve these important issues, and that we can all focus on the Company’s business without the need for additional litigation.”

Apart from witnessing persistent decline in revenues, Papa John’s has been under the spotlight of negative publicity after Schnatter has been publicly denounced for making a racist comment. Ever since, Papa John’s has been relentlessly trying to distance itself from Schnatter, and craft various ways to regain its brand image and sales trend.

To this end, the company was exploring various opportunities to sell out completely. Last year, Papa John’s said to have sought assistance from Bank of America Corporation (BAC) on potential buyout interests.

Papa John’s also undertook an assistance program for its U.S. and Canada franchisees. Under the program, it planned on reducing royalties, food-service pricing and online fees. Further, the company has been arranging funds for its franchises to implement marketing and reimaging initiatives.

Zacks Rank & Stocks to Consider

Papa John’s has a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the same space include Brinker International, Inc. EAT, El Pollo Loco Holdings, Inc. LOCO and Darden Restaurants, Inc. DRI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker International’s current-year earnings are likely to grow by 10%.

El Pollo Loco Holdings delivered positive earnings surprise in three of the trailing four quarters, the average beat being of 5.5%.

Darden Restaurants reported better-than-expected earnings in three of the trailing four quarters, the average beat being 4%.

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