On Friday, KeyBanc made an adjustment to Papa John's (NASDAQ:PZZA) financial outlook, reducing the price target to $64 from the previous $78 while maintaining an Overweight rating on the stock.
The firm's decision comes after Papa John's reported first-quarter earnings for 2024 which surpassed expectations in earnings per share (EPS) and margins, largely due to favorable commodity costs. Despite this, the pizza chain experienced a more significant drop in domestic same-store sales (SSS) than anticipated.
Papa John's has revised its North American SSS guidance to a range of flat to low single-digit negative, and also lowered its adjusted EBIT forecast to between $145 million and $155 million.
In response to these updates, KeyBanc has adjusted its EPS estimates for Papa John's for the years 2024 and 2025 to $2.48 and $3.01, respectively. The revisions take into account the softer near-term SSS trends in North America and a projected decrease in profitability for the remaining quarters of the year.
The firm believes that despite the current challenges, Papa John's can potentially improve SSS trends as it continues to implement its "Back to Better 2.0" strategy. The new price target of $64 is based on approximately 21.3 times KeyBanc's estimated 2025 earnings per share for Papa John's.
Papa John's recent menu and marketing initiatives were noted as insufficient to counteract the consumer headwinds that have impacted the company's performance. As a result, the brand is expected to focus more on value in the upcoming quarters to attract customers.
InvestingPro Insights
KeyBanc's recent adjustment of Papa John's (NASDAQ:PZZA) financial outlook aligns with some of the challenges reflected in the company's real-time data and InvestingPro Tips. Papa John's is currently trading at a P/E ratio of 25.19, which is high relative to its near-term earnings growth, suggesting that the market may be expecting higher future earnings or that the stock is potentially overvalued. Despite a challenging quarter, the company has managed to maintain its dividend payments for 12 consecutive years, and with a dividend yield of 3.46%, it could appeal to income-focused investors.
InvestingPro Tips indicate that the Relative Strength Index (RSI) suggests the stock is in oversold territory, which could imply a potential rebound if market sentiment shifts. However, with five analysts having revised their earnings downwards for the upcoming period, investors may want to exercise caution. For those seeking more in-depth analysis, InvestingPro offers an additional 16 tips for Papa John's, accessible through their subscription service. Interested readers can use coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Investors should also note that while the revenue has grown by 1.73% over the last twelve months as of Q1 2024, the quarterly revenue growth has seen a slight decline of 2.49%. Additionally, the stock has experienced a significant price drop over the last three months, with a 26.58% decline in total return. This could offer a more attractive entry point for investors who believe in the company's long-term strategy and ability to recover. With an InvestingPro Fair Value estimate of $68.03, there may be room for upside if Papa John's can successfully execute its "Back to Better 2.0" strategy and improve same-store sales trends.
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