Don’t hold your breath waiting for shares of Papa John’s Int’l, Inc. (NASDAQ:PZZA) to ever get cheap. No matter how you slice it, you’ll be waiting a long time.
With PZZA stock up 177% 427% in the past three years and five years, respectively, Papa John’s and PZZA stock have delivered for both its customers and its investors.
Shareholders have seen PZZA stock soar 15% on the year to date, against mostly flat performance by the broader averages. PZZA stock is also dominating the 1.27% gains in the SPDR S&P Retail ETF (NYSEARCA:XRT) — home to several prominent retailers.
Don’t Part With a Winner
Papa John’s stock appears to be just warming up after delivering first-quarter earnings and revenue results Wednesday that beat Street estimates.
First-quarter earnings hit 55 cents per share, climbing 22% year-over-year and topping last year’s mark of 45 cents per share. Analysts were expecting only 53 cents per share. First-quarter revenues hit $432 million, also beating analyst estimates.
And this explains why these shares, which trade a P/E of 38, or 16 points higher than the S&P 500, are rarely cheap. Papa John’s, which has beaten earnings for three straight quarter, never takes its eye off the bottom line. And this focus has been a boon for PZZA stock, making it a winner that should be held for the long term, not sold off on vague valuation concerns.
Business is Stable at Papa John’s
For starters, Papa John’s, continues to raise the bar on execution. This translates to net revenue growth of roughly 8% year-over-year, suggesting that Papa John’s is holdings its own against the likes of Domino’s Pizza, Inc. (NYSE:DPZ).
More importantly, though, Papa John’s solid revenue beat comes at a time when various multinational companies are cutting their outlook due to the strong U.S. dollar that devalues sales in overseas markets. And international sales have become very important to Papa John’s, which is looking to bite into Pizza Hut — owned by Yum! Brands, Inc. (NYSE:YUM).
Papa John’s has built a network of more than 4,000 global restaurants, which is still growing. Revenue from its international segment reached $25.4 million, a 7.6% increase year-over-year. Yes, North America is still where the bulk of revenue comes from. And Papa John’s continues to benefit from strong demand there, too.
First-quarter North American Revenue of $406.9 million, climbed 7.4% year-over-year, buoyed in part by better sales in its company-owned restaurant.
The first-quarter results demonstrate that Papa John’s is more than holding its own and putting itself in position to take share from both YUM stock and DPZ stock. Papa John’s delivered comps at its system-wide international restaurants that expanded 1.3 percentage points from last year, reaching 7.7%. By contrast, Domino’s and Pizza Hut posted international comps of 7.8% and 2%, respectively for their first quarter.
To the extent Papa John’s can continue to outperform in international markets, this will be yet another tailwind for PZZA stock, which is up 7% in the past five days, buoyed by Papa John’s raising its revenue and North American comps outlook for 2015. Papa John’s now expects 2015 earnings to range from $2.00 per share to $2.08 per share, up from the prior guidance of $1.98 to $2.06.
Bottom Line for PZZA Stock
Given all of these factors, it make no sense to worry about PZZA stock valuation when all of the important metrics are trending higher. Papa John’s is projected to grow earnings at an annual rate of 18% in the next five years, so hold on to your PZZA stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
