Papa John's Run Might Be Over For Shareholders

KeyBanc Capital Markets' Chris O'Cull downgraded the rating for Papa John's Int'l, Inc. (NASDAQ: PZZA) from Overweight to Sector Weight, saying that a meaningful appreciation in the company's shares was unlikely.

Papa John's shares have gained 291 percent over the past five years. O'Cull expressed concern surrounding the near-term SRS trends, following recent due diligence. He believes it may take the company longer than expected to regain SRS momentum, which is necessary for any meaningful share appreciation.

Although the company's long-term growth trends remain intact, its near-term SRS trends remain a concern area. Papa John's SRS trends have not recovered despite the company's increased promotional activity in the latter half of 4Q and 1QTD.

The analyst attributed the recent weakness to the company's messaging and believes that substantial changes may be required to improve SRS to the MSD range. The FY16 SRS outlook has been reduced from +3 percent to +2 percent, which is the lower end of the company's 2-4 percent guidance.

Papa John continues to be well positioned to leverage its digital presence to garner domestic market share from smaller competitors. The company may also benefit from further international expansion, O'Cull stated.

The EPS estimates for FY16 and FY17 have been reduced from $2.35 to $2.32 and from $2.70 to $2.64, respectively.