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Is Papa John's International (PZZA) Out of the Woods Yet?

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Shares of Papa John's International, Inc. (PZZA - Free Report) have lost 38.8% in the past two years against the industry’s 25.7% rally. However, the stock’s performance in recent times gives an indication that its strategic efforts are finally reaping benefits. In the past three months, the stock has gained 13.2%, outperforming the industry’s 10.5% growth. Let’s delve deeper.

Turnaround Strategy

Papa John’s has been reeling under negative publicity for quite a long time due to the denouncement of its ex-CEO on grounds of a racial slur. In order to revive its brand image and reinvigorate growth, the company has been taking numerous initiatives, which started to resuscitate the falling consumer sentiment.

Papa John’s is making significant changes in its board. Recently, the company extended its board to appoint Jeffrey C. Smith, CEO of Starboard, and Anthony M. Sanfilippo, former chairman and CEO of Pinnacle Entertainment, as new directors. Additionally, Papa John’s president and CEO, Steve Ritchie, was appointed to the board.

In the first quarter of 2019, Papa John’s partnership with Starboard proved conducive to the former. In fact, with the proceeds from this partnership, Papa John’s is confident about strengthening its balance sheet, making investments and retaining its brand image. The company also announced a partnership with Shaquille O'Neal — the NBA Hall of Famer, Entrepreneur and restaurateur. All in all, Papa John’s added six new directors in 2019.

International Expansion to Propel Growth

This Zacks Rank #2 (Buy) company has many restaurants that are doing a brisk business in the international markets like Europe, the Middle East, Latin America and China. The China region continues to experience growth driven by Papa John's optimized restaurant model, brand design enhancements and increased integration with third-party aggregators that is broadening its accessibility channels.

These apart, Papa John's has inked developmental agreements in many regions including Mexico, Egypt, Russia, Spain, Chile, the Netherlands, Colombia and Boston. It also debuted in France and Israel in 2018 and in Morocco in 2017. By 2021, the company plans to open five units in the Bahamas.

Bottom Line

Although Papa John's earnings, revenues and comps have been declining over the past few quarters, we believe the aforementioned efforts will help the company to bounce back. Moreover, the earnings estimates for the current and next year have witnessed upward revisions of 2.7% and 1.7%, respectively, over the past 7 days, reflecting analyst’s optimism surrounding the company’s growth potential.

Other Key Picks

Other similar-ranked stocks in the same space include Starbucks Corporation (SBUX - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and The Habit Restaurants, Inc. (HABT - Free Report) , each carrying the same rank as Papa John’s. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Starbucks, Chipotle Mexican Grill and Habit Restaurants have an impressive long-term earnings growth rate of 12.8%, 19.2% and 20%, respectively.

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