2 Papa John's Analysts React To $80M Investment Plan

Pizza chain Papa John's Int'l, Inc. PZZA said Wednesday that it will invest an additional $80 million in royalty relief, marketing campaigns and brand initiatives.

The Analyst

Stephens' Will Slabaugh maintained an Overweight rating on Papa John's with an unchanged $60 price target.

BTIG's Peter Saleh maintained at Neutral.

Stephens: Earnings Power 'Argument Will Hold'

Papa John's' incremental royalty relief through the end of 2020 will likely be "more targeted" than prior initiatives, Slabaugh said in a Thursday note.

The company is likely to invest capital to limit store closures and improve underpenetrated markets, the analyst said. 

Even if the pizza chain invests more capital than previously expected, the earnings power "argument will hold" so long as sales trends continue to improve, Slabaugh said. 

BTIG: Longer-Than-Expected Turnaround

Papa Johns' incremental investments suggest a notable sales turnaround has yet to take place and franchisee owners can't support themselves with regard to unit economics, Saleh said in a Thursday note. 

Current expectations call for the company to roll back royalty relief for most of the franchisees in the back half of 2019, the analyst said. 

It is likely that $30 million of the newly announced investments will be allocated toward royalty relief, with the other $50 million allocated to brand and marketing initiatives featuring retired NBA superstar and board member Shaquille O'Neal, Saleh said. 

Overall, an incremental $80-million investment is a "significant" amount given Papa John's financial state and its "modest" free cash flow generation, he said.

BTIG said additional details would be needed from management before the sell-side firm would make any changes to financial models and projections. 

Price Action

Papa John's shares were down 2.6% at $47.86 at the time of publication Thursday. 

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