Papa John's Earnings: Development Plan Changes Should Create Value for Franchisees, Shareholders

Narrow-moat Papa John's isn't resting on its laurels after growing its top line and operating income at striking 7.2% and 65% compound annual growth rates, respectively, since its 2019 turnaround. We believe that changes to its national advertising strategy should bolster already competitive economics for new stores in its largest North American market, driving an uptick in our forecast for home market development to 1.8% annual growth between 2024-28, from 1.6% previously. Taken in tandem with a more prudent approach to international development, we believe Papa John's has the right pieces in place to drive mid-single-digit (4.9%) average annual systemwide sales growth over the medium term, with a modest mix-shift toward asset-light international markets driving roughly 300 basis points of adjusted operating margin expansion over that period, to 10.4% in our 2028 midcycle forecast year. As we digest the firm's strategic roadmap and strong quarterly results, we expect to increase our $72 fair value estimate by a mid-single-digit percentage, consistent with the market's reaction in Feb. 29 intraday trading.