Papa John's Earnings: Lowering Our Fair Value Estimate as Traffic Disappoints; Shares Compelling

Narrow-moat Papa John's reported weak first-quarter results, with sluggish industry traffic bleeding into company results as North American and international comparable-store sales declined by 2% and 3%, respectively. We still believe that the firm's strategic road map is cogent, with investments toward improving its supply chain efficiency and margins, four-wall EBITDA, and cash return on new investments for franchisees. It also includes international hubs designed to leverage global best practices. These form the pillars of its Back to Better 2.0 framework. But a weaker macroeconomic environment might stymie the program's momentum. As we digest the results, we plan to lower our $76 per share fair value estimate by a high-single-digit percentage, but shares still look attractive at current prices.