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Papa John's (PZZA) Now a Buy on Expansion & Digital Efforts

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On Aug 18, we upgraded the world’s third largest pizza delivery company, Papa John’s International, Inc. (PZZA - Free Report) , by a notch to a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the company’s shares have been rallying since it reported second-quarter 2017 results on Aug 1. In the quarter, Papa John’s posted solid bottom-line performance, decent comps growth and increased its share repurchase authorization. Since then, the stock has gained 11%, outpacing the industry’s rise of 0.7%.



Moreover, it has been seeing an upward trend in earnings estimate revision. Over the past 60 days, the Zacks Consensus Estimate for current-quarter and current-year earnings have moved up 3.5% and 1.8%, respectively, adding to the optimism in the stock.

What’s Driving Growth?

We note that international expansion has been the backbone of Papa John’s operations for quite some time now. Evidently, many of Papa John’s restaurants are located in international markets like Europe, the Middle East, Latin America and China, and continue to perform strongly.

In fact, the second quarter of 2017 marked the 29th consecutive quarter of positive comps in the international segment. Currently, the company has 1660 international restaurants in 44 countries. It is also looking to expand in Brazil, Honduras, Uruguay and the Bahamas.

Papa John’s commitment to provide quality food is also commendable and should continue appealing health conscious customers.

Meanwhile, besides product innovation, the company is also focusing on digital innovation and continues to enhance its digital ordering process to attract new customers and drive growth and efficiency.

Recently, the company expanded its digital ordering capabilities with the launch of Facebook Instant Ordering and has become first national pizza chain to do so. It is also the foremost national restaurant chain to launch a custom ordering app for Apple TV, commence a nationwide digital rewards program and to surpass 60% of total U.S. sales via digital channels.

Going forward, the company aims to continue making investments in technology that will be focused on foundational improvements to their digital channels to increase order conversion rate, frequency and ticket average.

Bottom Line

However, owing to its large international presence, Papa John’s is exposed to risks of fluctuations in currency exchange rates, which impacts the company’s top line. Moreover, an increasing wage rate environment and a challenging industry backdrop remain concerns for most restaurant chains like Jack in the Box Inc. (JACK - Free Report) and The Cheesecake Factory Incorporated (CAKE - Free Report) .

But pizza giants like Papa John’s and Domino’s Pizza, Inc. (DPZ - Free Report) are riding on the certitude that demand for pizzas is unlikely to go down in the coming days.

Going forward, Papa John's strategic partnerships, various measures to boost sales and operational efficiency, increased focus on franchising and particularly, large scale expansion plans and digital initiatives, are likely to act as growth drivers.

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