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BMO Lowers Papa John's Stock Target Over Soft NA Comps

Papa John’s International, Inc. (NASDAQ: PZZA) witnessed a downward revision in its stock price target by BMO Capital Markets. This adjustment comes after the company’s first-quarter earnings report revealed weaker-than-expected comparable store sales (comps) in North America.

BMO Capital maintained its “Outperform” rating for Papa John’s stock, indicating a belief in its long-term potential. However, they reduced their price target from $80 to $75 per share, reflecting a more cautious outlook on the company’s near-term performance.

Papa John’s first-quarter earnings report, released on May 10, 2024, highlighted positive aspects such as earnings per share (EPS) exceeding analyst expectations and improved restaurant margins. However, the report also revealed a crucial concern: North American comps fell by 1% compared to the same period in 2023. This decline in sales growth within the company’s core market is a significant factor behind BMO Capital’s revised target.

The company attributed the lower-than-expected North American comps to various factors. These may include increased competition within the pizza delivery market, shifting consumer preferences, or potential brand perception issues. Papa John’s is re-evaluating its long-term targets and strategic goals in light of these developments.

Despite the reduced earnings outlook and the potential for Papa John’s stock price to be constrained in the short term, BMO Capital emphasizes a positive long-term view. The firm argues that the current valuation of Papa John’s stock reflects a significant negative sentiment, potentially creating an attractive buying opportunity. They point out that the company’s stock trades at a lower price-to-earnings ratio than expected if long-term targets are revised downward. This suggests that investor concerns may be overly focused on the recent sales decline and may not fully account for Papa John’s potential for future growth.

BMO Capital’s revised target reflects its assessment of these factors and their potential impact on Papa John’s stock price. The coming months will be crucial for Papa John’s as it implements new strategies to address the challenges in the North American market and strives to reignite sales growth. The success of these efforts will significantly influence the company’s financial performance and ultimately determine whether the current stock price reflects a true valuation.

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