Market Overview

MKM Has 'More Comfort' In Pizza Chains, Upgrades Papa John's

MKM Has 'More Comfort' In Pizza Chains, Upgrades Papa John's

Pizza delivery chains are "better positioned" compared to other restaurant chains to navigate through the coronavirus pandemic, including Papa John's Int'l, Inc./ (NASDAQ: PZZA), according to MKM Partners.

The Papa John's Analyst

Brett Levy upgraded Papa John's from Neutral to Buy with a price target lowered from $67 to $64.

The Papa John's Thesis

Papa John's is up 80% since bottoming on March 18 so the timing of the upgrade may appear to be "late to the game," Levy wrote in the note. But there's still upside from current levels after management provided "clear evidence" of same-store sales momentum in its Tuesday business update. This should give investors confidence that recent menu changes and initiatives are working.

From a financial point of view, Levy said recent momentum implies the head office is in a better place financially and structurally to support its franchisees if needed.

Management's update also marks the first time in the past five years that domestic same-store sales outpaced rival pizza chain Domino's Pizza, Inc. (NYSE: DPZ).

There are three risks to an upgrade at this time, including:

  • Uncertainty related to the health of Papa John's' franchise system, especially after last quarter marked the first time in recent memory where the franchisees financial positioning was "discussed as incrementally more positive."
  • Questions if recent momentum can be sustained.
  • Will economic relief measures be sufficient enough to support customers and individual operators to the point where the head office won't need to offer resources?

PZZA Price Action

Shares of Papa John's were trading higher by 2% at $54.49.

Related Links:

Domino's CEO Says Pizza Chain Is Mostly Open For Business In US

How Trump Is Handling The Restaurant Biz Amid Coronavirus Outbreak

Latest Ratings for PZZA

May 2020Stephens & Co.ReiteratesOverweight
May 2020JefferiesMaintainsHold
May 2020UBSMaintainsNeutral

View More Analyst Ratings for PZZA
View the Latest Analyst Ratings


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Posted-In: Bretty Levy MKM PartnersAnalyst Color Upgrades Price Target Restaurants Analyst Ratings General Best of Benzinga

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