Papa John's (PZZA) Shares Up 61% YTD: More Room To Run?

Shares of Papa John's International, Inc. (NASDAQ:PZZA) are riding high on international expansion plans, strategic partnerships, strong digital platform and various sales initiatives. Consequently, the company’s shares have surged 60.9% year to date, compared with the industry’s rally of 20%. However, softer revenues at international segment remain a concern. Let’s delve deeper.

Growth Drivers

Papa John’s has been reeling under negative publicity for quite a long time, owing to the denouncement of its ex-CEO on grounds of racial slur. In order to recuperate brand image and reinvigorate growth, the company has been taking numerous initiatives, which have started to show signs of reviving consumer sentiment.

Papa John’s has been making extensive changes to its board. The company recently extended its board to appoint Jeffrey C. Smith, CEO of Starboard, and Anthony M. Sanfilippo, former chairman and CEO of Pinnacle Entertainment, as new directors. Additionally, Papa John’s president and CEO, Rob Lynch was appointed to the board. The company also announced a partnership with Shaquille O'Neal, the NBA Hall of Famer, entrepreneur and restaurateur. All in all, Papa John’s added six new directors in 2019.

Moreover, Papa John’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. The company’s online and digital marketing activities have escalated significantly over the past several years in response to increasing use of online and mobile web technology. In fact, Papa John’s remains committed toward providing a better customer experience with enhancements to digital ordering process.

Currently, the company has 100 corporate and franchise restaurants that enable customers to visually track delivery on a map. Notably, Papa John’s announced that it has entered into a national partnership with UberEATS, and its existing fastest-growing door-to-door delivery service providers, DoorDash and Postmates.

Although the company reported mixed third-quarter 2019 results, the biggest takeaway from the quarter was positive comparable sales growth — for the first time in two years. Global restaurant sales were up 2.3%, against the year-ago quarter’s decline of 6.6%. Moreover, domestic company-owned restaurant comps were up 2.2% in the reported quarter against the prior-year quarter’s decline of 13.2%.

Concerns

The company has been generating soft revenues over the past several quarters in the International segment. During the first, second and third quarters of 2019, revenues declined 14.8%, 12.3% and 3.8%, respectively. Papa John’s, which has a significant international presence, is susceptible to unfavorable fluctuations in currency. Moreover, the International segment’s revenues have been affected by the same.

Zacks Rank & Key Picks

Papa John’s has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the same space include Chipotle Mexican Grill, Inc. (NYSE:CMG) , The Habit Restaurants, Inc. (NASDAQ:HABT) and Wingstop Inc. (NASDAQ:WING) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chipotle Mexican Grill, Habit Restaurants and Wingstop’s have an estimated long-term earnings growth rate of 19.7%, 10% and 15.3%, respectively.

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