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

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Papa John's International (PZZA - Free Report) has seen its earnings revisions tumble over the last year as it faces rising costs and other headwinds. The pizza delivery powerhouse is also dealing with some leadership shakeups, as well as tough-to-compete against periods alongside a growing assortment of food delivery options.

Papa John’s Basics

Papa John’s is the world’s third-largest pizza delivery company with over 5,700 restaurants in roughly 50 countries and territories. PZZA competes against Domino's Pizza (DPZ - Free Report) and other low-priced pizza chains, as well as local and higher-end places for its share of the take-out pizza market.

Papa John’s and other companies benefited from the stay-at-home covid boost and then a desire from consumers to eat out during a period of economic positivity. PZZA’s earnings outlook has been fading for over a year now amid the shifting economic and consumer spending landscape.

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Papa John’s executive team has continually pointed to higher labor costs and commodity prices as some of the reasons for its shrinking earnings. The pizza power’s adjusted earnings dropped from $3.51 a share in FY21 to $2.94 in 2022 on 2% higher revenue.  

Papa John’s FY23 and FY24 consensus EPS estimates have dropped 10% and 13%, respectively over the last 60 days. These downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. Zacks estimates call for PZZA’s adjusted 2023 earnings to slip by 2.4% on 4.3% higher revenue.

Bottom Line

News broke earlier this week that Papa John’s CFO would step down. The c-suite change came after PZZA said in early March that Jeffrey Smith, CEO of Starboard Value LP and Chair of the Papa John’s board of directors, resigned.

Papa John’s shares have dropped over 40% from their late 2021 peaks, as it fell alongside many early pandemic winners that simply got overheated. Its main rival, Domino’s, tumbled by almost exactly as much, with the two stocks now neck-and-neck over the last five years.

The selloff has PZZA trading at more reasonable valuations. Still, it might be best to stray away from Papa John’s right now as it continues to face various cost pressures and more delivery competition than ever before as Uber Eats and others expand. 

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