Basketball legend Shaquille O’Neal, also known as Shaq, is reviving one analyst’s faith in embattled pizza giant Papa John’s (PAPA).
Papa John’s has been struggling to regain its footing after scandals involving its founder rocked the company over the past year or so. The pizza company saw declining sales ,and shares fell more than 10% over the past year, while the broader market rose 9% in the same time period.
But the company looks to be turning a new leaf after founder John Schnatter announced earlier this month that he will be stepping down from the board. Last week, Papa John’s revealed that Shaq will be replacing Schnatter on the board and will be the brand’s new ambassador.
Wall Street is starting to show support for the move. Stifel analyst Chris O’Cull upgraded Papa John’s to Hold from Sell on Wednesday and raised the price target to $45 from $35 per share, a 22% increase.
‘A legitimate turnaround plan’
“We believe the [Papa John’s] turnaround has entered a phase where investors believe the worst is behind them and are willing to accord the company a hall pass to see whether the sales plan can work,” O’Cull wrote in a note to clients. “The more optimistic sentiment stems from the view that a new, highly-engaged board of directors coupled with a new brand spokesperson (Shaquille O’Neal) can reverse the declining SRS/traffic and EBITDA trend.”
Management has expressed that regaining the trust and rebuilding the brand image will remain a top priority. “I fundamentally believe the more work that you can do on the internal culture, the more that that output will translate to overall better consumer sentiment for the brand,” CEO Steve Ritchie said on the company’s earnings conference call of February 26. “And I will tell you that we’ve had some challenges over the last year, but we found the opportunity to think about partnerships and influencers because of the work that we have been doing over the last several months.”
So far, investors appear to be on board with Ritchie’s turnaround plan. Since earnings were announced on February 26, Papa John’s shares have surged nearly 20%, while the S&P 500 was only up less than one percent.
“All of these factors have fueled a narrative that the company is building a legitimate turnaround plan and encouraged investors to be patient to see if it can start to deliver better sales performance. We struggle to see a catalyst that would cause investors to sell shares before the company has an opportunity to prove whether its sales plan can work,” O’Cull argued.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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