Pizza stocks have underwhelmed in 2022, and some pizza bears say the industry may be fundamentally broken thanks in large part to the COVID-19 pandemic.
Domino's Pizza Inc DPZ, Papa John's Int'l, Inc. PZZA and Pizza Hut parent Yum! Brands, Inc. YUM will continue to face unprecedented delivery competition, Bank of America analyst Sara Senatore said.
But it's still too early to write off pizza stocks just yet.
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Unprecedented Competition: Pizza stock bears argue that the pandemic forced most restaurants to invest heavily in delivery options, including partnering with third-party delivery services such as DoorDash Inc DASH and Uber Technologies Inc UBER.
As a result, pizza companies lost a significant portion of restaurant delivery market share.
A surprising amount of pizza industry growth during the pre-pandemic period of 2011 to 2019 came from carryout, not delivery, Senatore said. She estimates pizza delivery revenues were incredibly stable at about $10 billion to $11 billion per year during that nine-year stretch.
Meanwhile, carryout sales grew about 35% from $14 billion to $19 billion annually, Senatore said.
How To Play It: Now that the pandemic is over, Senatore said the pizza industry can finally return to normal. While most industry players reported same-store sales growth below historical averages in 2022, Senatore said the industry is not "broken" and three-year pizza comps have been roughly in-line with historical averages.
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"Given that the carryout occasion primarily competes with traditional Quickservice occasions (carryout or drive through) the putative market for carryout pizza is far bigger — and less penetrated — than delivery, suggesting to us a long growth runway ahead," she said.
Bank of America has a Buy rating and $448 price target for Domino's and a Neutral rating and $137 target for Yum. It does not cover Papa John's.
Benzinga's Take: Carryout is clearly the golden goose for the pizza industry, moving forward. In the third quarter, Domino's reported three-year same-store sales growth of just 8% for delivery but 35% for carryout.
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