Papa John’s international stock growth is near

Pope John’s International NASDAQ: PZZA The stock price has suffered over the past two years as competition and changing consumer trends have reduced growth. Today, the stock price is rising from a solid support level as the company has returned to growth. Growth is modest and helped by an extra week but, more importantly, compounded by a strong margin, which has driven cash flow and capital returns. The takeaway from the report is that this company is turning a corner and is expected to continue improving this year and next.

As the stock trades at value levels, its price could continue to rise over the next twenty-four months once growth is achieved.

Papa John’s delivers in the fourth quarter

Papa John’s results are mixed compared to analyst consensus, but the profit miss is minimal and easy to overlook given its margin and cash flow. Regardless, sales of $572.31 million increased 8.6% year-over-year, helped by comp store growth and new stores, and 1% adjusted for the week higher. Systemwide, sales increased 11%, or 2% adjusted for the additional week. Segmentally, North America led with a 2% increase in comp stores, driven by a 2% increase in tickets and traffic. International comps decreased by 6%, but are offset by the number of stores. New stores are up net growth of 89, or 1.5%, with the majority in the international segment.

The earnings strength is also due to the extra week, but margin plays a significant role. Adjusted operating margin improved 100 basis points to take advantage of a 10% increase in net income, but free cash flow moved the market. Free cash flow has improved by nearly 200% and is expected to remain strong into 2024. The bottom line is that FCF is sufficient to support the dividend and future increases by investing in growth. The company didn’t provide guidance, but it is strengthening its leverage through store count and margin growth, so 2024 should be a decent year. Analysts expect 4% growth in revenues and 16% growth in profits.

Efforts to improve growth are among the findings of the statements and conference call. Efforts include improving digitalisation, optimizing UK markets and preparing for the next phase of growth, which involves domestic and international markets.

Analysts see a positive side for Papa John’s: institutional plan in place

Analysts have reduced ratings and price targets for Papa John’s over the past year, but the consensus remains Moderate Buy with double-digit upside. The first reviews to be released following the fourth-quarter release come from Piper Sandler, which maintained a Neutral rating but raised its price target, and Wedbush, which reiterated its above-consensus price target. Marketbeat.com consensus data calls for a 16% upside, and Wedbush’s $87 is another $3.50 or 4% higher.

Institutional activity suggests that a market floor is in place. Institutions and funds owned nearly 100% of these stocks and made large purchases in the fourth quarter of 2023 and the first quarter of 2024. Nothing in the fourth quarter report suggests that will change, and some details suggest it could rise. If so, the price of this stock will likely rise.

Until then, the 2.5% dividend is a reliable and safe equal to about 50% of this year’s earnings. The ratio drops significantly in F2025 and could lead to another dividend increase; the latter have been substantial. Papa John’s also bought back shares and reduced its count by 7% last year.

Technical Outlook: Papa John’s is at a critical level

Price action in Papa John’s is at a critical level where a sustained downtrend can turn into a reversal. That level is near $70.50, where support is growing. However, the post-release action is mixed, showing support above the critical level and resistance at the 30 and 150 day EMAs, so there is no clear signal yet. As it stands right now, this market appears to be finishing up its next move, which could go either way. A fall below $70.50 could reach $60 before finding solid support, but new lows are unexpected. A move above the EMAs could find resistance near $80, which will limit gains until more consumer data becomes available later in the year.

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