Papa John's (PZZA) Hits A 52-Week High: Right Time To Buy?

Shares of the world’s third largest pizza delivery company, Papa John’s International, Inc. (NASDAQ:PZZA) hit a 52-week high of $78.10 on Sep 14. However, the company ended the day’s trading a trifle lower at $77.77. Notably, year to date, the stock has returned over 39%.

Papa John’s reported upbeat second-quarter 2016 results on Aug 2, wherein both earnings and revenues beat the Zacks Consensus Estimate. Notably, the company has been posting positive comps both in the domestic as well as international markets over the past several quarters. Going forward, the company is expected to maintain comps growth on the back of its focus on menu innovation and value offers.

Also, the pizza delivery chain raised its earnings guidance for 2016 and now expects earnings in the range of $2.35 to $2.45 per share, up from $2.30 to $2.40 expected previously. Meanwhile, North America system-wide comps are projected to rise 3% to 5%, up from 2% to 4% previously.

Moreover, on Aug 19, Papa John’s paid a quarterly cash dividend of 20 cents per share, a 14% increase over the previous payout of 17.5 cents, to stockholders of record as on Aug 8. We believe that the dividend hike reflects the company’s strong cash position and solid balance sheet and should bolster investor confidence and thereby improve its market position.

Notably, large scale international expansion has been the backbone of Papa John’s operations of late. Currently, the company has more than 1500 international restaurants, with over 350 restaurants across 16 Latin American countries.

Recently, the company revealed plans to expand further in Mexico and has inked a restaurant development agreement with Orquest Foods, whereby it plans to build 60 restaurants during the next eight years.

Before signing the deal in Mexico, the company inked restaurant development agreements in Russia, Spain, the Netherlands and also debuted in Israel, all in the first half of 2016. The company intends to launch its 5000th restaurant globally by the end of 2016.

Meanwhile, Papa John’s efforts to remove artificial flavors and synthetic colors from the entire menu are commendable and should appeal to health conscious customers. Further, the company’s heavy investments in technology-driven initiatives like digital ordering and development of applications continue to boost revenues.

Also, re-franchising a large chunk of its system will reduce the company’s capital requirements and facilitate earnings and ROE expansion.

However, Papa John’s has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates. Further, higher costs and a soft consumer spending environment in the U.S. restaurant space raise concerns.

Zacks Rank & Other Stocks to Consider

Papa John’s currently holds a Zacks Rank #2 (Buy). Other well-performing companies in this sector include Del Taco Restaurant, Inc. (NASDAQ:TACO) , Denny’s Corporation (NASDAQ:DENN) and Wingstop, Inc. (NASDAQ:WING) , all carrying the same Zacks Rank as Papa John's. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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