Papa John's (PZZA) Stock on Fire: What's Behind the Rally?

Despite the coronavirus pandemic, shares of Papa John's International, Inc. PZZA have gained 61.6% in the past six months, compared with the industry’s increase of 1.3%. The company’s sustained international expansion plans, strategic partnerships, strong digital platform and various sales continue to drive performance. While most of the industry participants failed to register positive comparable restaurant sales in second-quarter 2020, Papa John's delivered positive comps during the same time period. Let’s delve deeper.

Key Catalysts

Many of Papa John’s restaurants are located in international markets like Europe, the Middle East, Latin America, Portugal and China, which continue to perform strongly. The China region continues to experience growth, driven by the company’s optimized restaurant model, brand design enhancements and increased integration with third-party aggregators that are broadening its accessibility channels. Papa John's has inked developmental agreements in several regions including Mexico, Egypt, Russia, Spain, Chile, the Netherlands, Colombia and Boston. In 2019, it opened 233 international units, bringing the total number of open units to more than 2,100 stores across 48 countries outside the United States, including Portugal and Pakistan. The company added 92 net worldwide units in 2019.

Papa John’s is investing heavily in technology-driven initiatives like digital ordering to boost sales. The company’s online and digital marketing activities have increased significantly over the past few years in response to increasing use of online and mobile web technology. In fact, Papa John’s remains committed toward providing a better customer experience with enhancements to its digital ordering process.

Meanwhile, Papa John’s continues to invest in direct customer delivery. In March 2020, the company re-engineered its ordering and delivery process with the launch of no contact delivery. Notably, it drove substantial gains in satisfaction metrics and delivered seamless customer experience during the second quarter.

The company remains focused on product introduction to drive growth. Notably, menu innovations like Garlic Parmesan Crust, toasted handheld Papadias and Jalapeno Popper Rolls continue to witness solid popularity among customers, thereby driving the top line. Backed by better brand positioning, the new products have driven higher ticket and traffic across dayparts without cannibalizing core premium products and complexing operations at other stores.

In July 2020, the company in collaboration with Shaquille O'Neal (Papa John's board member and restaurant owner) launched a new Shaq-a-Roni pizza. Markedly, the launch has struck the right chord with consumers and generated more than $2 million in charitable contributions.

Strong sales building initiatives and digitalization drove the company’s comparable restaurant sales in second-quarter 2020. The company recorded positive comparable sales growth in second-quarter 2020, which marks the second straight quarter of comps growth. Global restaurant sales climbed 19.1% against the year-ago quarter’s fall of 3.8%. Further, domestic company-owned restaurant comps rose 22.6% in the reported quarter against a decline of 6.8% in the year-ago quarter.

Zacks Rank & Key Picks

Papa John’s, which share space with Domino's Pizza, Inc. DPZ, currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Jack in the Box Inc. JACKand El Pollo Loco Holdings, Inc. LOCO. Jack in the Box sport a Zacks Rank #1, while El Pollo Loco carries a Zacks Rank #2 (Buy).

Jack in the Box 2021 earnings are expected to surge 17.7%.

El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.

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