In Focus: Papa John's and The Pizza Wars
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring Papa John's into focus.
I know Papa John's (PZZA) didnt make the Wall Street news last week, but it was a slow week. The week that Papa John's did make the news cycle, better stories dominated the week, so I'm discussing Papa John's now, two weeks after the fact.
John Schnatter courtesy Getty Images
The TLDR on Papa John's. Over a year ago the then Papa John's CEO John Schnatter blamed lagging quarterly sales on the NFL's issues surrounding Colin Kaepernick, it was later discovered that Schnatter used the "N" word on a call. Long story short, there was a public fall out with Papa John's Pizza. Eventually Scchnatter stepped down as CEO, but he didnt go quietly.
Look Ma I'm on TV
After relieving himself of his duties, Schnatter continued to fight to regain control of the company he founded, even though it was in the best interest of the shareholders for him to step aside, be quite and rich, and let someone else clean up the mess he made. But he couldnt compel himself to sit quietly because he still wanted to be famous, and that's just my opinion. Schnatter wanted to be famous, staring in Papa John's commercials, more than he wanted the shareholders to benefit from what Papa John's the franchise had to offer, but this is my opinion.
Shaquille O'Neal speaks with CNBC
Fast forward and Schnatter has decided to move on, he's given up his bid to regain control of the company through a deal made between him and the Papa John's board. That's one issue resolved.
Papa John's board also brought Shaquille O'Neal in as a board member and a multi-unit franchisee. There aren't too many people as good as Shaq at using his name to sell something. This is another win for Papa John's.
Papa John's vs. The Industry
Currently Papa John's trades at $51.93, which put's its market cap at $1.65 billion. Back in 2016 the stock traded to over $89 per share, with the current shares outstanding, an $89 price would put the market cap at $2.8 billion. Dominos Pizza (DPZ) currently has a market cap of $10.2 billion. Yum Brand(YUM) which is home to Pizza Hut, as well as KFC and Taco Bell has $30.8 billion market cap. Pizza Hut accounted for 17% of the Yum Brand's revenue in 2018.
While I don't believe Papa John's is a $30 billion or even $10 billion company, I don't think it's true value is $1.6 billion. With the right leadership Papa John's can be a $2 1/2 to $3 billion company, which would put the stock at $78 to $94 per share.
Papa John's is a BUY. They company appears ready to move forward from the drama that's plagued it for the last year. They've brought on one of the world's greatest spokesmen in Shaquille O'Neal, the company has been able to steadily top $1.5 billion in revenue over the past five years. The company generates free cash flow, and pays a small $0.22 quarterly dividend. The dividend won't make you rich, but it should keep an investor patient while the stock makes its move up. This isn't a taste test, this isn't who has the best pizza (because it's neither Papa John's, Pizza Hut, or Dominos, that title belongs to Pipitone's Pizza on Dekalb and La Piazza in Plainview, NY) this is about an undervalued investment opportunity, Papa John's is a BUY.
This is where I leave you, with a BUY on Papa Johns. Thanks for checking out this week's In Focus, may your next investment be your best investment.
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