Papa John’s: Bullish As The New CEO Takes Charge

MIAMI, FL - JULY 11: In this photo illustration, a Papa John's pizza box is seen on July 11, 2018 in Miami, Florida. The founder of Papa John's pizza, John Schnatter, apologized Wednesday for using the N-word on a conference call in May. (Photo illustration by Joe Raedle/Getty Images)

Papa John’s International, Inc. (PZZA) dropped more than a quarter in 2018, after a period of negative publicity hurt its same-store sales and margins. Following its investment in 2018 February, the hedge fund, Starboard Value has brought about a series of noteworthy changes, the latest of which is the appointment of the new CEO. The industry veteran joins from Arby’s where his unconventional marketing strategies helped the fast-food chain outperform even the established players in the market.

Similarly, Chipotle Mexican Grill, Inc. (CMG) in 2018 February witnessed a well-respected leader joining the firm after a period of adverse publicity. Food safety issues in some of its outlets had slowed its same-store sales growth. As the new CEO gradually restored the sales recovery, the forward PE of Chipotle expanded close to 57.0% within six months. Due to the close resemblance of the two scenarios, I expect Papa John’s forward PE will also follow a similar expansion in six months. The application of the multiple thus calculated to the mid-point of adjusted EPS guidance results in a fair value of $59.25 with an upside of c. 23.1%, a compelling buying opportunity. However, my valuation assumes a stable economy and bullish market outlook as in 2018.

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Disclosure: I/We have no investments in the stocks mentioned in the above article and don’t intend to open any within the next 72 hours. I wrote this article for myself, and it expresses my opinion. I/We receive no compensation, nor do I/We have any business relationship with any companies whose stocks are mentioned in the article.

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