Papa John’s: Takeover Speculation Heats Up, but Stock Still Looks Cheap

Key Morningstar Metrics for Papa John’s International

• Fair Value Estimate: $66.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Semafor reported on June 11 that Irth Capital Management, which owns around 5% of Papa John’s International PZZA, is teaming up with Apollo to take the pizza chain private in a deal valued at around $2 billion. Shares popped 8% in late-day trading on the news.

Why it matters: We previously questioned how Qatar-based Irth would finance a bid for Papa John’s, as it managed just $190 million as of Dec. 31. This roadblock is seemingly removed if done with Apollo, given its massive $70 billion in private equity assets under management.

• This isn’t the first time Papa John’s has attracted takeover interest. We’re aware of the potential for increasing returns via financial engineering, which could manifest through refranchising a vast portion of the firm’s home US market, where it operates about 15% of its restaurants.
• However, with reasonably high leverage (net debt/adjusted EBITDA amounted to more than 4 times at the end of 2024), any successful takeover would hinge on durable improvement in Papa John’s underlying operations.

The bottom line: Given that it’s unclear whether a deal will be reached, or at what price, our $66 per share fair value estimate for narrow-moat Papa John’s remains. Even after the pop, shares trade at a 20% discount to our intrinsic valuation.

• The reported offer price is in the low 60s per share. This is about a 30% premium to the June 10 closing price but a low- to mid-single-digit-percentage discount to our fair value estimate, so we would hope for a higher offer.