Market Overview

Stifel Downgrades Papa John's To Sell Amid 'Fraternal Corporate Culture'

Share:
Stifel Downgrades Papa John's To Sell Amid 'Fraternal Corporate Culture'
Related PZZA
Stifel: Papa John's Story Is Now 'Takeout Or Delivery'
46 Biggest Movers From Yesterday
Papa John's expected to show sales improvement (Seeking Alpha)

Papa John's Int'l, Inc. (NASDAQ: PZZA) has a major problem on its hands as a "fraternal corporate culture" hurts the prospect of any notable turnaround or buyout, according to Stifel.

The Analyst

Stifel's Chris O'Cull downgraded Papa John's from Hold to Sell with a price target lowered from $50 to $38.

The Thesis

Papa John's toxic culture led by recently-ousted CEO and founder John Schnatter was highlighted by a Forbes report and isn't the only issue facing the pizza delivery chain, O'Cull said in a note.

The sentiment towards Papa John's is "extremely negative" based on social media comments and checks, which suggests same-restaurant-sales have fallen over the past few days.

The company's problems stem at the corporate level and may imply franchisees will demand some form of financial support or initiate legal action, the analyst wrote. In fact, the average franchisee's annual store cash flow is likely to fall from $95,000 in 2016 to roughly $60,000 this year and failure to provide financial assistance could result in store closures.

O'Cull said a potential takeout of Papa John's "seems futile" at this point given the extent of brand damage. While a deal can still in theory be achieved at a good price for a buyer, simply proclaiming "the proverbial under new ownership banner" could backfire and the new owner would still be responsible for any lawsuit from franchisees.

Many of the company's shareholders are event-driven funds who are expecting a takeout to be the ultimate outcome, but the analyst said it's difficult to imagine a scenario where the company is bought at a premium to current levels.

Price Action

Shares of Papa John's hit a new 52-week low of $47.29 Monday morning and was down by more than 6.5 percent on the day. The board of directors said Monday it approved a "poison pill" provision, aimed at preventing Schnatter from gaining more control of the company.

Related Links:

Ousted Papa John's CEO Wanted To Merge With Wendy's

Elon Musk In Hot Water Over 'Pedo' Tweet

Image credit: Mr. BlueMauMau, Flickr

Latest Ratings for PZZA

DateFirmActionFromTo
Oct 2018Stifel NicolausMaintainsHoldHold
Aug 2018Stifel NicolausUpgradesSellHold
Aug 2018Longbow ResearchUpgradesNeutralBuy

View More Analyst Ratings for PZZA
View the Latest Analyst Ratings

Posted-In: Chris OCull John SchnatterAnalyst Color Downgrades Restaurants Top Stories Analyst Ratings General Best of Benzinga

 

Related Articles (PZZA)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Morgan Stanley Initiates Amneal Pharmaceuticals, Anticipates Outperformance

Mid-Morning Market Update: Markets Open Lower; Hasbro Beats Q2 Estimates