Deutsche Bank cuts Papa John’s stock target to $77, maintains hold rating By

Mar 1, 2024

Deutsche Bank cuts Papa John's stock target to $77, maintains hold rating © Reuters.

On Friday, Deutsche Bank (ETR:) adjusted its outlook on Papa John’s International Inc. (NASDAQ:), reducing the price target to $77 from the previous $80 while maintaining a Hold rating on the stock. The adjustment follows the company’s fourth-quarter earnings report, which featured an earnings per share (EPS) beat primarily due to strong margins in company-operated restaurants.

The pizza chain’s guidance for 2024 was less than stellar, as it grapples with sales challenges and efforts to optimize its portfolio. Papa John’s reported a slight decline in North American same-store sales (SSS) at the start of the first quarter, down 1%.

Still, the company anticipates a pickup in growth beginning in the second quarter, driven by marketing initiatives and product innovation, aiming to achieve a 2-3% increase in SSS for the full year.

Internationally, Papa John’s has seen a sequential improvement in SSS in the first quarter to date. Nonetheless, due to significant headwinds in the Middle East, which impacted results by approximately 400 basis points, the company has adopted a cautious stance, expecting only limited improvement in the near term.

The forecast for unit growth in 2024 was also underwhelming. Papa John’s projects a slight acceleration in North American openings, a key focus area, but anticipates limited net international unit growth. The number of new international locations is expected to drop by about 50% year-over-year, with strategic closures contributing to a consolidated net unit growth of just 1-2%.

The company’s top-line guidance for 2024 has done little to alleviate concerns regarding the outlook for same-store sales, especially in light of increased competition from rivals like Domino’s Pizza (NYSE:). The sentiment around Papa John’s stock may hinge on North American SSS performance, with investors looking for signs of sustained positive momentum in this area before adopting a more bullish stance.

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