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Bear of the Day: Papa John's (PZZA)

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Papa John's (PZZA - Free Report) has seen its stock price surge over 16% in the past three months. Yet, it appears the embattled pizza giant is headed in the wrong direction for the foreseeable future. 

Overview

At this point, many investors have likely heard about the scandals involving Papa John's founder John Schnatter. These issues aside, Papa John’s has struggled mightily as of late. The company saw its adjusted Q2 earnings sink nearly 25% from the year-ago period. Worse yet, North American comparable sales sunk 6%, while international comps dipped 0.8%.

The company also revised downward its 2018 earnings outlook on the back of declining sales trends. Plus, Yum! Brands’ (YUM - Free Report) Pizza Hut will now receive the positive exposure that Papa John’s once pointed to as a huge reason for the company’s growth and success as the official pizza sponsor of the NFL.

With that said, rumors have swirled for some time now that the Louisville, Kentucky-based pizza chain might possibly be an acquisition target.

Stock Price Movement

As we mentioned at the top, PZZA stock has jumped roughly 16% during the last three months. This tops its industry’s average climb of 7%. With that said, shares of Papa John’s are down over 23% over the last year and 34% during the past two years. 

Investors will also note that PZZA has experienced a significant amount of turbulence over the last five years. Papa John’s stock closed regular trading Wednesday at $51.86 per share, which marked a roughly 25% downturn from its 52-week high of $69.45 per share.

 

Outlook & Earnings Trends  

And now we get to the why Papa John’s is our Bear of the Day. Our current Zacks Consensus Estimate is calling for the firm’s quarterly revenues to fall by roughly 11% to hit $384.44 million. PZZA's full-year revenues are also projected to sink 9.4%.      

Worst still, PZZA’s adjusted quarterly earnings are projected to plummet 61.7% to $0.23 per share. Plus, the chain’s adjusted full-year earnings are expected to sink 42.4%.

We can also see that the company’s earnings estimates have fallen dramatically over the last 90 days for Q3, Q4, fiscal 2018, and fiscal 2019.

Bottom Line

Papa John’s is currently a Zacks Rank #5 (Strong Sell) based on its negative earnings revision trends. The company is also expected to see both its bottom and top lines sink for the rest of the year. Papa John’s fiscal 2019 revenues are also expected to slip nearly 1% from our 2018 outlook.  

Investors should pay attention to Papa John’s when it reports its third quarter 2018 financial results on November 6 for any positive updates.

In the meantime, investors interested in getting into the restaurant industry might consider Dunkin Brands (DNKN - Free Report) , Noodles & Company (NDLS - Free Report) , or Dave & Buster's (PLAY - Free Report) , which are all currently Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks.

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