On Friday, Stifel, a financial services company, revised its financial outlook for Papa John's (NASDAQ:PZZA), reducing the pizza chain's price target from $60.00 to $55.00, while maintaining a "Hold" rating on the stock.
The adjustment follows Papa John's report of a 1.8% decline in North American comparable sales in the first quarter, with franchise-operated locations experiencing a 1.5% drop and company-owned stores seeing a 3% decrease. The first four weeks of the second quarter continued the downtrend with comparable sales falling by 1%.
Papa John's has also adjusted its full-year comparable sales guidance from the previously expected low end of the long-term algorithm, which was 2% to 4%, to a range of flat to a low single-digit decrease. Additionally, the company has lowered its forecast for the fiscal year 2024 adjusted EBIT to a range of $145-155 million, down from the previously projected $153-163 million.
The company's challenges include competition from larger pizza chains such as Domino's and Little Caesars (NASDAQ:CZR), which have been more aggressive with their price-value offerings. Stifel also expressed skepticism regarding the effectiveness of increased national media spending as a strategy to counter these competitors. Questions were raised about the long-term profitability of the franchisees in light of Papa John's approach to expanding third-party (3P) sales.
Stifel's current "Hold" rating reflects concerns that are already factored into the company's valuation, which stands at 11 times enterprise value to EBITDA (EV/EBITDA) for the next twelve months. This valuation, according to Stifel, incorporates many of the concerns surrounding the pizza chain's performance and market position.
InvestingPro Insights
In light of Stifel's revised outlook for Papa John's, recent data from InvestingPro provides additional context for investors considering the company's stock. The market capitalization currently stands at approximately $1.75 billion, and the stock is trading at a P/E ratio of 21.56, which has remained relatively stable with an adjusted P/E ratio of 21.44 for the last twelve months as of Q1 2024. Despite a modest revenue growth of 1.73% during the same period, the company's revenue actually saw a quarterly decrease of 2.49% in Q1 2024.
InvestingPro Tips suggest that management's aggressive share buyback strategy and the dividend's increase for three consecutive years, with a 9.52% growth in the last twelve months, could be seen as positive signs of confidence in the company's future. However, the stock has recently experienced significant price declines, trading near its 52-week low and showing a one-week total return of -9.77%.
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available for Papa John's at https://www.investing.com/pro/PZZA, including insights on the stock's performance and future earnings predictions. Moreover, with the use of coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights. There are over 10 additional InvestingPro Tips listed for Papa John's, which could help investors make a more informed decision regarding their investment in the company.
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