Papa John’s Is Set to Deliver Big, Delicious Profits

Papa John’s (NASDAQ:PZZA) is moving to Atlanta, but what does that mean for PZZA stock?

Billboard From Papa John's At Amsterdam East The Netherlands
Source: DutchMen /

It’s the third stage of CEO Rob Lynch’s turnaround for the company.

Stage one was hedge fund Starboard Value taking a big stake and  kicking founder John Schnatter to the curb two years ago after he created what Forbes called “a toxic culture.”

Hiring Lynch was stage two. He had been with Inspire Brands’ Arby’s chain in Atlanta, and brought in Shaquille O’Neal as spokesman. Shaq in turn bought a stake in nine stores and took half his compensation in stock options. 

Stage three is the Atlanta move, which takes the company completely out of Schnatter’s orbit. It may even prelude a sale, either to privately held Inspire or to Restaurant Brands (NYSE:QSR), which lacks a pizza franchise, or to someone else.

Hot Pizza

Or the company might just keep growing.

Lynch, O’Neill and the pandemic have made Papa John’s a hot stock in 2020. Since the start of the year shares are up 28%. It took Papa John’s shares just one month to recover from their pandemic lows. Same store sales were up 24% year over year in August. Lynch has taken full advantage, hiring 30,000 workers as its take-out and delivery strategy looked brilliant during the crisis.

PZZA stock earnings for the June quarter were spectacular. Revenue was up 19%, 28% in North America. Net income was $20.6 million, 48 cents per share, on revenue of over $460 million. The company was able to pay a dividend of 22.5 cents per share, although with the share’s gains it currently yields just 1.09%.

PZZA has become a hot stock, with “years of upside” according to The Wall Street Journal. I have urging people buy it since before Lynch was hired, when its market cap was lower than its annual sales. I last praised it in June.

The company is worth $2.7 billion, against estimated 2020 sales of $1.8 billion. Restaurant Brands, by comparison, has a market cap of over $17 billion on 2019 sales of $5.6 billion.

At the stock’s current price, O’Neal’s shares will be worth $7.3 million once fully vested in 2022. That’s almost basketball money. He was estimated to be worth $400 million in 2018.

Papa Future

But Shaq has gotten more than exercise working under Lynch. He has gotten an education. The chain has introduced new items like a “Papadia,” which is a flatbread pizza folded on itself, and the “Shaq-a-Roni,” which is an extra-large pepperoni pizza.

The new Atlanta offices will host franchise development, marketing, and a quality control center, which will also try to create other new menu items.

The company’s latest ad features a song by Nappy Roots, focusing on people using their phones to create a good day by ordering pizza. Under Schnatter, the chain was considered a technology laggard. Now analysts at KeyCorp, which recently initiated coverage as a buy,  say it’s “narrowing” the digital divide.

The next step is expansion. HB Restaurant Group, which only became a franchisee last year with 43 restaurants, now plans to open 49 more.

The Bottom Line

At Papa John’s bottom, when it was entertaining interest from private equity firms, Roark Capital, which controls Inspire, was said to be among the bidders.  Others included KKR & Co. (NYSE:KKR), Bain Capital and CVC Capital Partners.

Papa John’s can still move much higher, but it’s still too small to resist a determined suitor. Atlanta puts it on a bigger stage, set to make big profits for investors.

At the time of publication, Dana Blankenhorn held no positions in companies mentioned in this story.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear,  available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn

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