Stifel analysts downgraded shares of Yum! Brands (NYSE:YUM) to Hold from Buy and Papa John's (NASDAQ:PZZA) to Sell from Hold in a note to clients Thursday. The firm maintained a price target of $135 for YUM and $65 per share for PZZA.
The lack of catalysts has resulted in the firm moving YUM lower. "Our investment thesis was that YUM would benefit from franchisees raising menu prices to combat inflation, which happened," wrote the analysts. "We also expected YUM's comps to benefit from demand recovery in emerging markets like China; unfortunately, the recovery has not been as strong as expected."
While the company has accelerated unit growth, as Stifel projected, they believe the lagging comp performance to peers has overshadowed this improvement. "We continue to view the valuation as reasonable, but we see fewer catalysts for shares in 2024, given US comp sales will likely moderate with less pricing, international markets remain soft, and the market seems to be factoring in another year of above-algo unit growth," the analysts added.
Meanwhile, the firm believes PZZA is "looking overbaked." The three concerns the firm expressed following the PZZA's 3Q earnings report remain intact. They see the turnaround of the UK market potentially taking several quarters to gain traction, net unit growth falling short of Street expectations for 2024, as well as the development in China potentially moderating, and domestic comp sales growth falling short of expectations.
"Our channel checks indicate the QSR Pizza category struggled in 4Q23. We estimate Papa John's domestic comps fell short of the Street mean estimate of 1.8%, including the benefit of the 13th-week comparison," said the analysts.