Papa John's Stock Up On Appointment Of O' Neal As Ambassador

Shares of Papa John’s International, Inc. (NASDAQ:PZZA) rallied more than 6% at close on Mar 22, following the announcement of appointing restaurateur Shaquille O’Neal as one of the board of directors and an investor in nine Papa John’s restaurants. In conjunction with this, O’ Neal will also ink a marketing agreement with Papa John’s to uphold the position of the company’s brand ambassador.

Appointment of O’ Neal is a strong move on the part of Papa John’s. He is not only a four-time NBA champion and television sports analyst but is also known for his restaurant business. Apart from owning Krispy Kreme Doughnuts franchise in Atlanta, O’ Neal is the founder and owner of Big Chicken, a fast-casual fried chicken restaurant in Las Vegas.

The above-mentioned move is clearly an effort by Papa John’s to revive the long-standing declining sales trend and restore the brand image. Unlike other pizza chains, Papa John’s has been under a negative light for quite a long time, owing to the denouncement of its ex-CEO on grounds of racial slur.

A look at the company’s price trend reveals that the stock has had an unimpressive run on the bourses in the past year. Its shares have lost 10.9% against the industry’s collective growth of 18.2%.

Efforts to Revive Brand Image

For quite some time now, Papa John’s have been undertaking measures that would help it restore the brand. Recently, the company extended the board to appoint Jeffrey C. Smith, CEO of Starboard, and Anthony M. Sanfilippo, former Chairman and CEO of Pinnacle Entertainment as new directors. Additionally, the company’s president and CEO, Steve Ritchie has been appointed to the board.

The company is also partnering and venturing new avenues to drive investment. Last month, it entered a securities purchase contract with Starboard Value LP and affiliates. Starboard is making a $200-million investment in Papa John’s, with the option of making an additional investment of $50 million through Mar 29, 2019.

Further, the company is said to have sought assistance from Bank of America Corporation (NYSE:BAC) in August on potential buyout interests. Recently, rumors had it that Restaurant Brands (NYSE:QSR) might team up with the investment capital firm 3G Capital to buy Papa John’s.

Our Take

We believe that with the above-mentioned moves, this pizza chain stands a chance to revive sales. In 2018, the company’s total revenues declined 11.8% year over year. In the fourth quarter of 2018, global restaurant sales decreased 13% compared with the third quarter's decline of 6.6%. Notably, the company witnessed growth of 9.9%in the year-ago quarter.

Further, this recent move will enable Papa John’s to fend off intense competition from the likes of Domino’s (NYSE:DPZ) .

Papa John’s currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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