Is This The Bottom For Papa John’s International?

Papa John’s Raises Its Long Term Targets 

Shares of Papa John’s NASDAQ: PZZA have been in a correction for the last few quarters on concerns about valuation. The stock is still trading above 25X its earnings but the bottom may be in. While the current results appear to be well priced into the market, the company has accelerated its plans for new store openings and subsequently raised its targets for store count growth over the next three years. While the company did not give guidance for revenue or earnings at that time, we can only assume that a 6% to 8% restaurant growth rate will translate into high single-digit revenue growth at least. 

“Last quarter we maintained our development momentum with strong new restaurant openings and significantly expanded and strengthened our pipeline with major new deals. As a result, we are excited to raise our 2022 outlook for restaurant growth and to provide a new, multi-year development goal to open 1,400 to 1,800 net new Papa Johns restaurants worldwide by the end of 2025 – with vast development whitespace still remaining,” says Rob Lynch, president, and CEO of Papa John’s International. 

Papa John’s Squeaks Past Consensus, Shares Move Higher 

Papa John’s had a good quarter with only one problem, the $542.69 million or 6% in YOY growth was expected by the market. The company beat the consensus by $2.31 million or about 50 basis points which is a slim margin indeed. The gains were driven by a 1.9% comp in North America coupled with a 0.8% comp internationally and the addition of 62 new stores. Moving down to the margin, margins were better than expected but came under pressure due to rising input costs. The good news is that adjusted earnings grew on a YOY basis, if at a slower pace than revenue, and outpaced the Marketbeat.com consensus figure by a penny. Looking forward, we are expecting mid-single-digit revenue growth across the system but comp growth may be tough to come by. 

We haven’t seen any analyst's commentary since the report was released but the analysts view this stock as a Buy. The Marketbeat.com consensus rating has been holding steady at a firm Buy over the last 12 months with a price target more than 50% above the current price action. The most recent activity has the price target edging lower but still trading well above the current price action. We think the downtrend in the consensus target will end now if not reverse and help put a floor in the price action. 

The Technical Outlook: Papa John’s International Is Overextended 

The correction in Papa John’s may continue but it looks like it is overextended to us. Both indicators have begun to diverge from the price action and the price action itself suggests buyers are scooping up shares. For now, support is at the $89 level and it looks like it may hold. Assuming that this is true, we see shares of this stock trading sideways at or near the current levels. If the market can not maintain support at this level, however, and sets a new low, we expect to see this stock move down to the $80 range.