Longbow Research bumped up its rating of Papa John’s shares to buy from neutral on Friday, as analyst Alton Stump says “it can only get better from here” after the third-largest pizza chain was embroiled in controversy.
“We believe negative investor sentiment is now fully baked into the share price,” Stump wrote in a note. “We believe the shares of [Papa John’s] represent an attractive entry point ahead of a recovery in same-store sales and/or transaction taking place.”
Papa John’s founder John Schnatter’s racist comment, claims of extortion and litigation threats hammered pizza sales at the company’s stores across the country. Longbow has a price target of $52 a share on the stock, after it cratered over the last three months, falling over 28 percent through Friday’s close of $40.66 a share.
“The negative impact from Mr. Schnatter’s comments may not be as bad as many expected,” Stump said. “The company will likely receive a pass from investors for at least the next quarter or two while management implements changes to its branding and marketing.”
Shares of Papa John’s rose 2.6 percent in premarket trading.
While Stump noted an acquisition of Papa John’s any time soon “is highly unlikely,” he says the company’s “effort to move away from John Schnatter as the face of the company … will help grease the skids for a potential acquisition to take place.” Speculation about the possible sale of Papa John’s will “likely provide a floor for the share price,” Stump says, giving the stock a floor near its current price.
In addition, Schnatter’s shot at the NFL last November and Papa John’s eventual loss of its place as the league’s official sponsor is not expected to “have a negative impact” on Papa John’s same-store sales, Stump said.