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Wedbush Initiated Coverage on Papa John’s with a ‘Buy’ Rating

Rajiv  Nanjapla - Author

Nov. 20 2020, Updated 12:44 p.m. ET

On Wednesday, Nick Setyan of Wedbush initiated his coverage on Papa John’s with a “buy” rating. He also gave a target price of $95, which represents an upside potential of 14.9% from the closing price. As reported by The Fly, Setyan is optimistic about Papa John’s CEO Rob Lynch’s initiatives. He thinks that the company is well-positioned to exceed the near-term expectations. Setyan thinks that the company commands a higher valuation multiple.

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On June 1, Credit Suisse increased its target price from $84 to $90. As of July 1, analysts’ consensus target price was $87.29, which represents a return potential of 5.5%. Wall Street is bullish on the stock. Among the 15 analysts, 66.7% recommend a “buy,” while 33.3% recommend a “hold.” None of the analysts recommend a “sell.”

Papa John’s update on its business

Earlier this week, Papa John’s (NASDAQ:PZZA) provided an update on its restaurant reopenings and preliminary SSSG for the second quarter. The company stated that it has reopened all of its traditional restaurants in North America. However, non-traditional restaurants located in universities and stadiums are still closed. In international markets, the company has approximately 225 of the 2,100 restaurants still closed in compliance with local government policies.

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Papa John’s reported a strong performance in June and beat its double-digit SSSG for the third month. For the five weeks ended on June 28, the company reported an SSSG of 18.5% in domestic company-owned restaurants and 26.3% in North American franchise restaurants. Meanwhile, in international markets, the company reported an SSSG of 6.0%. For the second quarter, the company reported an SSSG of 22.6% in domestic company-owned restaurants and 29.6% in franchised restaurants. In international markets, the company’s SSSG came in at 5.3%.

On the impressive second-quarter performance, Lynch, said, “The events of the past few months have accelerated Papa John’s transformation into an innovation-driven organization, contributing to our strong business momentum today. This focus on innovation has enabled initiatives like ‘No Contact Delivery’ and Papadias, as well as an exciting pipeline of upcoming products.”

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The stock performance

Wedbush’s bullish views on Papa John’s increased investors’ confidence. On Wednesday, Papa John’s stock rose to a high of $82.88 before closing at $82.71. The stock rose 4.2% from the previous day’s closing price. Papa John’s has returned 31%. So far this year, the company has outperformed the broader equity markets and its peers. The S&P 500 Index has declined by 3.6% during the same period. Domino’s Pizza (NYSE:DPZ) and Yum! Brands (NYSE:YUM) have returned 27.9% and -14.2%, respectively.

Amid the COVID-19 outbreak, restaurants closed their dining spaces and only operated drive-thru and delivery services. Overall, independent restaurants struggled to survive just on drive-thru and delivery services. Companies with well-established delivery services, like Papa John’s, will likely gain market share from independent restaurants in the post-COVID times. Also, Papa John’s impressive first-quarter performance and initial second-quarter results contributed to a rise in the stock price. 


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