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

Jayson Derrick
·2 min read

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

Apr 2020

MKM Partners

Upgrades

Neutral

Buy

Mar 2020

Stephens & Co.

Assumes

Overweight

Feb 2020

Credit Suisse

Maintains

Outperform

View More Analyst Ratings for PZZA
View the Latest Analyst Ratings

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.