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Papa John's Stock Up on Potential Buyout by Restaurant Brands

Zacks Equity Research

Shares of Papa John's International, Inc. PZZA has surged 7.7% at close on Jan 23, following a few reports about the company mulling over selling out to Restaurant Brands International QSR. Per a Deal reporter, Restaurant Brands, the parent company of Burger King, Popeye's Louisiana Kitchen and Tim Hortons, has the probability of teaming up with the former CEO John Schnatter and investment capital firm 3G Capital to make the purchase.

In November 2018, Trian Fund Management LP — a private equity fund — discarded an offer to buy Papa John’s. Rumors have been doing the rounds that Papa John’s has been receiving takeover proposals from companies and private equity firms.

Why is Papa John’s Desperate for a Sellout?

Apart from witnessing a consistent decline in revenue trends, Papa John’s has been receiving negative publicity after its ex-CEO, John Schnatter has been publicly denounced for making a racist comment. Since then, 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. Papa John’s is also said to have sought assistance from Bank of America Corporation BAC in Auguston potential buyout interests.

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

Dismal comps performance over the past couple of quarters has been the most major concern for Papa John’s. In the third quarter, comps at domestic company-owned restaurants declined 13.2% versus 1.7% comps growth in the year-ago period. Comps at franchised restaurants in North America fell 8.6% against comps growth of 0.7% in the prior-year quarter. Comps at system-wide North American franchised restaurants decreased 9.8% in contrast to 1% comps growth in the year-earlier quarter. Comps at system-wide international restaurants were down 3.3% as opposed to comps growth of 5.3% in the prior-year quarter.

Apart from the bleak top-line performance, the company’s earnings have also declined in the past few quarters due to weak operating results. Stiff competition from pizza chains like Domino’s DPZ is also a major concern.


Notably, a look at Papa John’s price trend revealed that the stock has had an unimpressive run on the bourses in the past year. Shares of the Zacks Rank #4 (Sell) have lost 32.1% against the industry’s collective growth 3.9% during the same time frame. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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