Papa John’s International Makes Dough and Stock Rises

Key Points

• Papa John's had a solid quarter but fell short of top-line estimates, sparking volatility in the stock price. 
• The company returned to growth and widened margin, driving solid cash flow and capital return. 
• Sell-side activity is mixed but puts a floor in the market, setting the stock up to rally over the long term. 

Papa John’s International NASDAQ: PZZA share price has suffered for the last two years as competition and shifting consumer trends cut into growth. Today, the stock price is increasing from a solid support level because the company has returned to growth. Growth is slim and aided by an extra week but, more importantly, compounded by a strong margin, which drove cash flow and capital returns. The takeaway from the report is that this company is turning a corner and is expected to continue improving this year and next.

Because the stock is trading at value levels, its price could continue to rise over the next twenty-four months as growth is achieved. 

Papa John’s Delivers In Q4

Papa John’s results are mixed compared to the analyst consensus, but the top-line miss is slim and easy to overlook, given the margin and cash flow. Regardless, $572.31 million in sales is up 8.6% YOY, aided by comp store growth and new stores, and by 1% adjusted for the extra week. Systemwide, sales are up 11% or 2% adjusted for the extra week. Segmentally, North America led with a 2% comp store increase driven by a 2% increase in tickets and traffic. International comps declined by 6% but are offset by store count. New stores are up a net 89 or 1.5%, with most in the international segment. 

Earnings strength is also due to the extra week, but margin plays a significant role. The adjusted operating margin improved by 100 basis points to leverage a 10% increase in net income, but free cash flow moved the market. Free cash flow improved by nearly 200% and is expected to remain solid in 2024. The bottom line is that FCF is sufficient to sustain the dividend and future increases while investing in growth. The company did not give guidance but is building leverage through store count growth and margin, so 2024 should be a decent year. Analysts forecast a consensus of 4% revenue and 16% earnings growth. 

Efforts to improve growth are among the takeaways from the statements and conference call. Efforts include improved digitization, optimizing UK markets, and preparing for the next growth phase, which provides for domestic and international markets. 

Analysts See Upside For Papa John’s: Institutional Floor In Place

Analysts trimmed their ratings and price targets for Papa John’s over the last year, but the consensus remains Moderate Buy with a double-digit upside. The first revisions to post following the Q4 release are from Piper Sandler, which maintained a Neutral rating but raised its price target, and Wedbush, which reiterated its above-consensus price target. The Marketbeat.com consensus figure forecasts a 16% upside, and Wedbush’s $87 is another $3.50 or 4% higher. 

Institutional activity suggests a floor for the market is in place. The institutions and funds owned nearly 100% of this stock and bought heavily in Q4 2023 and Q1 2024. Nothing in the Q4 report suggests it will change, and some details hint that it may increase. If so, this stock’s price will likely head higher. 

Until then, the 2.5% dividend is reliable and safe at roughly 50% of this year’s earnings. The ratio falls significantly in F2025 and may lead to another dividend increase; the last few have been substantial. Papa John’s also repurchased shares and reduced the count by 7% last year. 

The Technical Outlook: Papa John’s Is At a Critical Level

The price action in Papa John’s is at a critical level where a sustained downtrend may turn into a reversal. That level is near $70.50, where support is growing. However, the post-release action is mixed, showing support above the critical level and resistance at the 30- and 150-day EMAs, so there is no clear signal yet. As it is, this market appears to be winding up for its next move, which could go either way. A fall below $70.50 could reach the low $60s before finding firm support, but new lows are unexpected. A move above the EMAs may find resistance near $80 that caps gains until more consumer data is available later in the year.