On Thursday, Stifel sustained its Sell rating for Papa John's (NASDAQ:PZZA) with an unchanged stock price target of $65.00. The firm's position comes after evaluating the company's fourth quarter performance and future expectations.
Papa John's had previously shared its fourth quarter comparable sales and unit count, which were factors in the higher-than-anticipated earnings per share (EPS), aided by robust store-level profits and a reduced tax rate.
However, the company's first-quarter-to-date comparable sales have been negative, and there has been a significant reduction in the global unit development forecast, particularly due to the international segment. Papa John's anticipates that adjusted EBIT for 2024 will be between $153 million and $163 million.
This projection is slightly above Stifel's estimate of $155 million but falls short of the general market expectation of $163 million. The expected increase is approximately 6% at the midpoint, excluding the impact of the 53rd week in the fiscal calendar.
The pizza chain expects its comparable sales to pick up in the second quarter as the national advertising contribution rate is set to rise from 5% to 6%. Despite this strategic move, Stifel remains unconvinced that additional national media spending will significantly alter the competitive landscape.
The firm points out that Papa John's does not seem to have an effective response to the price-value offerings of its major competitors, such as Domino's and Little Caesars (NASDAQ:CZR).
Moreover, Stifel expresses skepticism regarding Papa John's approach to growing third-party (3P) sales and its potential impact on franchisee profitability. The analyst concludes that the fourth quarter results and the updated outlook have not altered their initial thesis regarding the stock.
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