New Leaders Will Modernize Tech And Revamp Marketing To Improve Customer Engagement

Key Takeaways

• New executive leadership and tech modernization aim to drive revenue growth, enhance customer experience, and improve net margins.
  
• Expanding internationally and optimizing restaurant development costs are strategies to fuel global growth and boost overall revenue and profitability.
  
• Persistent sales declines and rising food costs are squeezing margins, necessitating reinvestment in marketing to improve value perception amid challenged earnings.

Catalysts

Operates and franchises pizza delivery and carryout restaurants under the Papa John's trademark in the United States and internationally.

• Appointing new executive leaders like Kevin Vasconi as Chief Digital and Technology Officer and Jenna Bromberg as Chief Marketing Officer is expected to drive technology innovation and transformative marketing, likely impacting revenue growth and improving net margins.
  
• Plans to modernize the tech stack, enhance the digital customer experience, and revamp the loyalty program aim to improve operational efficiency and increase customer engagement, positively affecting future earnings and potentially boosting top-line revenue.
  
• Strategic focus on core product innovation, menu optimization, and amplifying marketing messages is targeted at increasing customer consideration and frequency, which should support revenue growth and help stabilize or improve margins.
  
• Expanding international operations with a focus on priority markets and establishing regional support centers is intended to fuel global growth and create long-term earnings power, directly impacting overall corporate revenue and profitability.
  
• Initiatives to optimize restaurant development costs and strategically partner with franchisees for growth-oriented market expansion are designed to enhance the value proposition, support franchisee profitability, and increase market share, positively influencing revenue and net income.

Papa John's International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Papa John's International's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $126.8 million (and earnings per share of $3.95) by about December 2027, up from $94.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $86.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2027 earnings, up from 14.5x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 0.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.08%, as per the Simply Wall St company report.

Papa John's International Future Earnings Per Share Growth

Risks

• The company is facing challenging sales trends which have persisted into the third quarter and are expected to continue into 2024 and 2025, impacting revenue and earnings.
  
• There has been a 6% decrease in North America comparable sales, attributed to lower transactions and a shift in channel mix, which affects margins and overall profitability.
  
• International sales are also experiencing challenges, with comparable sales down 3% in the third quarter. This is impacting revenue from international operations.
  
• Higher food basket costs, especially for cheese and chicken, are putting pressure on company-owned restaurant margins, impacting net margins and profits.
  
• The company's adjusted operating income has declined from the previous year, and there is a need for reinvestment in marketing and value perception, which could further impact short-term earnings.

Valuation

• The analysts have a consensus price target of $60.73 for Papa John's International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $73.0, and the most bearish reporting a price target of just $45.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.4 billion, earnings will come to $126.8 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 9.1%.
• Given the current share price of $41.96, the analyst's price target of $60.73 is 30.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.