We came across a bullish thesis on Papa John’s International, Inc. (PZZA) on Substack by Dominick D’Angelo. In this article, we will summarize the bulls’ thesis on PZZA. Papa John’s International, Inc. (PZZA)’s share was trading at $44.79 as of March 5th. PZZA’s trailing and forward P/E were 17.63 and 26.53 respectively according to Yahoo Finance.
Chefs at a pizza company preparing freshly made dough.
Papa John’s (PZZA) recently became the subject of buyout speculation when reports emerged on February 13 that Irth Capital Management was in discussions to acquire the company for $1.4 billion, or $43 per share. This news caused shares to surge 18%, significantly altering the risk-reward profile from its previous level of $35. However, the situation took a turn on February 20 when board director Anthony Sanfilippo unexpectedly stepped down, with the company notably omitting the standard disclosure that his departure was unrelated to disagreements with management. This raised questions about the credibility of the buyout talks, as it would be unusual for a director to resign ahead of a potential transaction, forfeiting board fees, stock compensation, and a premium payout. The lack of clarity suggests two possible scenarios: either Sanfilippo supported a sale while the rest of the board did not, or no formal offer was ever made, leading to a low probability of a deal materializing. If either case proves true, the stock’s rise from $35 to $50, and its retreat to the mid-$45 range, suggests further downside as arbitrage investors unwind their positions once it becomes clear that a transaction is unlikely.
A potential deal break could present a buying opportunity if shares decline to the mid-to-high $30s. Several factors support this thesis. First, in August 2024, Todd Penegor was appointed CEO, bringing a track record of success from his tenure at Wendy’s, where shares more than doubled under his leadership. His decision to come out of retirement for this role signals confidence in the company’s turnaround potential. Second, same-store sales (SSS) trends are expected to improve in the second half of 2025, setting the stage for a more positive narrative. While EPS is projected to decline 21% in 2025, it is forecasted to rebound 34% in 2026, creating a fundamental catalyst for renewed investor interest. The stock’s valuation remains undemanding, with PZZA trading at 13.6x estimated 2027 EPS at current levels and only 11.5x at a potential $38 deal-break price, making for an attractive risk-reward setup.
Pizza industry turnarounds are not unprecedented—Domino’s (DPZ) provides a blueprint for success. Several operational improvements could further enhance Papa John’s prospects. Management has identified inefficiencies, including an outdated app, labor-intensive pizza-making processes, and small capital expenditures that could streamline operations and lower employee costs. Even basic fixes, such as ensuring the website functions properly, are critical; early due diligence revealed a bug that could lead to order errors. Additionally, management’s focus on improving franchisee ROI through cost-cutting measures and operational efficiencies should drive demand for future locations. With a predominantly franchised business model, excess free cash flow can be redeployed into share buybacks at attractive valuations, compounding shareholder returns. If management executes effectively, PZZA presents a compelling investment case despite recent market volatility surrounding the takeover rumors.
Papa John’s International, Inc. (PZZA) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held PZZA at the end of the fourth quarter which was 24 in the previous quarter. While we acknowledge the risk and potential of PZZA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PZZA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.