Strong second-quarter results for Papa Johns International, Inc. (PZZA - Analyst Report) led to a new all-time high for this pizza restaurant chain. In addition, a raised outlook for 2012 sent earnings estimates higher, pushing PZZA to a Zacks #1 Rank (Strong Buy).
Uptrend Continued in 2Q
On July 31, Papa Johns reported second quarter 2012 adjusted earnings of 61 cents per share, surpassing the Zacks Consensus Estimate by 8.9% and bettering last years 47 cents. The company has now delivered positive earnings surprises for four straight quarters with an average beat of 16.2%.
Total revenue jumped 8.5% year over year to $318.6 million and surpassed the Zacks Consensus Estimate of $311.0 million. The top-line growth was due to higher comparable restaurant revenues in both domestic and international markets, and an increase in the number of units worldwide. Comparable system-wide restaurant revenue rose 5.7% and 6.1% in North America and in the international markets, respectively.
Moreover, operating income expanded 27.0% to $24.3 million, despite increases of 12.2% and 1.4% in the company-owned restaurant expenses and domestic commissary and other expenses, respectively. General and administrative (G&A) expenses also jumped 13.9% to $31.5 million.
Encouraged by the solid second quarter results, Papa Johns raised its earnings outlook for 2012 to between $2.45 and $2.55 from the earlier guidance of $2.40 to $2.50.
The company also increased its domestic and international system-wide comps guidance. The North America system-wide comparable revenue is projected at 2.0% to 3.0%, up from the earlier guidance of 1.5% to 2.5%. The international comparable revenue is expected between 4.0% and 5.5%, up from the previous guidance of 2.5% to 4.5%. However, the company reiterated its total revenue growth outlook in the range of 6% to 7%.
Earnings Estimates Inching Higher
All four estimates for 2012 have moved higher over the last 30 days, while three of four estimates have increased for 2013. The Zacks Consensus Estimate for this year is up 2.8% to $2.59, and the Zacks Consensus Estimate for next year has gained 2.8% to reach $2.95.
The Zacks Consensus Estimate for 2012 reflects year-over-year improvement of about 17.8%, while 2013 indicates year-over-year growth of 13.9%.
Papa Johns valuation presents a mixed picture. Shares look expensive on a price-to-earnings (P/E) and price-to-book (P/B) basis. On a forward P/E basis, shares are trading at 19.49x versus the peer group average of 17.18x. On a P/B basis, shares are trading at 5.34x versus 2.24x for the peer group average.
However, on a price-to-sales (P/S) basis, shares trade at 0.95x, a slight discount to the peer group average of 0.97x. Also, the stock looks attractive given a trailing 12-month ROE of 27.6%, which is higher than the peer group average of 13.7%. The companys long-term estimated earnings per share growth rate also remains strong at 12.0%.
Chart Reveals Strength
Since October 10, 2011, Papa Johns stock remained above its 200 day moving average, which currently stands at $44.30. It has also remained above the 50-day moving average since April 13, 2012.
The stock delivered a return of 33.50% year to date, outperforming S&P 500s return of 11.65%.
Louisville, Kentucky-based Papa Johns is a delivery and carryout pizza restaurant chain in the United States, which was incorporated in 1985. As of June 24, 2012, Papa Johns had 3,973 restaurants in 50 states across 33 countries. Over the next six years, the company expects to open approximately 1,500 restaurants, including 300 in North America and 1,200 in the international market. With a market capitalization of $1.18 billion, Papa Johns primarily competes with Dominos Pizza, Inc. (DPZ).