Will 2018 Be a Good Year for Pizza Companies?

All major pizza companies have announced their 4Q17 earnings, so it’s time to compare their performance. We consider Papa John’s (PZZA), Domino’s Pizza (DPZ), and Yum! Brands (YUM) in our analysis. We’ll look at their performance in 4Q17. Also, we’ll cover management’s guidance for 2018 and analysts’ estimates for the next four quarters. Finally, we’ll end this series by looking at the companies’ valuation multiples and analysts’ recommendations.

Since the announcement of their 4Q17 earnings, stock prices for Domino’s and Yum! Brands have increased while Papa John’s has declined.

In 4Q17, Domino’s posted adjusted EPS (earnings per share) of $1.94 on revenues of $891.5 million. Analysts were expecting the company to post EPS of $1.94 on revenues of $904.0 million. Despite posting lower-than-expected sales in 4Q17, the stock price has increased. Investors are optimistic about the company’s initiatives, such as technological advancements and an aggressive expansion strategy. Also, reports of Restaurant Brands International (QSR) planning to bid for Domino’s Pizza appear to have contributed to raising the company’s stock price. As of March 26, Domino’s was trading at $231.28, which represents growth of 4.8% since the announcement of its 4Q17 earnings on February 20.

Domino’s was followed by Yum! Brands, which posted adjusted EPS of $0.96 on revenues of $1.58 billion. Analysts were expecting the company to post EPS of $0.80 on revenues of $1.59 billion. The company also announced that it would buy a 3.0% stake in GrubHub, an online food-ordering company, which is expected to drive pickup and delivery sales at KFC and Taco Bell. The announcement and better-than-expected 4Q17 earnings appear to have increased the company’s stock price. As of March 26, Yum! Brands was trading at $84.03, which represents growth of 3.0% since the announcement of its 4Q17 earnings on February 8.

Papa John’s posted adjusted EPS of $0.65 on revenues of $467.6 million. Analysts were expecting the company to post EPS of $0.67 on revenues of $465.61 million. The lower-than-expected 4Q17 earnings and weakness in the broader equity market have more than offset the positivity surrounding the announcement that the company will be focusing on its value perception, technological advancements, loyalty program, and other advertising avenues to drive sales. As of March 26, Papa John’s was trading at $55.93, which represents a fall of 0.8% since the announcement of its 4Q17 earnings.

Since the beginning of 2018, Domino’s Pizza, Papa John’s, and Yum! Brands’ stocks have returned 22.4%, -0.3%, and 3.0%, respectively. Also, the broader comparative indices, the S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR Fund (XLY), have returned -0.6% and 4.5% year-to-date, respectively.

Let’s start our analysis by looking at 4Q17 revenues for the three big pizza companies in the next part of this series.