MKM Bullish On Papa John's: 'Return To Basics'

Papa John's Intl', Inc. PZZA challenges continued in the second quarter but management's "greater sense of urgency" is an encouraging development, according to MKM.

The Analyst

MKM Partners analyst Brett Levy initiated coverage of Papa John's with a Buy rating and $55 price target.

The Thesis

Papa John's management looks to be motivated to bring "significant and immediate changes" to distance itself from prior woes, Levy wrote in the note. The company's strategy appears to be three-fold, including:

1. Greater-value focus and new marketing initiatives.
2. Fostering a better relationship with franchisees, including financial assistance.
3. Bringing new operational and strategic talent, including the recent appointment of activist investor and Starboard Value CEO Jeff Smith as chairman.

Papa John's is implementing a "return to basics" back to its "Better Ingredients, Better Pizza (BIBP)" motto, according to the analyst. But a turnaround is never easy, especially in the pizza delivery space that faces a new set of competition from third-party delivery platforms.

The case for buying Papa John's isn't made solely on easy comparisons from recent operating struggles. Rather, a new collaborative approach across the entire company and a willingness to bring new products and ideas could potentially result in a "fundamentally led stock performance recovery." Similar to the pizza delivery business itself, it's "better to be early than late" in buying Papa John's stock.

MKM Partners also initiated coverage on rival chain Domino's Pizza, Inc. DPZ with a Neutral rating and a $265 price target.

Price Action

Shares of Papa John's were trading higher by 0.78% at $45.29.

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