After struggling in the past year, these two mouthwatering pizza stocks — PZZA and DPZ — could be cooking up a comeback.
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The restaurant industry holds many intriguing firms that can navigate hostile economic conditions. As economic tides go out, I’d look to the restaurant stocks with the best value menus and pass up on the fancier dining-out plays. Indeed, the appetite for more value-conscious offerings tends to rise at the expense of fancy dine-out options when times get tough.
The pizza companies discussed in this article offer consumers a decent bang for their buck and have comeback potential. Let’s get to it.
Papa John’s International (NASDAQ:PZZA)
Papa John’s International stock has been stuck in a hole for most of 2022. The stock lost nearly 50% of its value from peak to trough before rallying higher in the final quarter of 2022. Shares are now down around 40% from their high.
Though Papa John’s found itself on the receiving end of a downgrade from Wedbush Securities over “overly-optimistic” EPS estimates, I still think the pizza giant is more than capable of topping (forgive the pun!) the current slate of estimates, even as recession headwinds set in.
Now, Papa John’s is fresh off two consecutive earnings misses. The latest bottom-line miss saw the firm clock in an EPS of $0.54, just shy of the $0.61 consensus. Meanwhile, Papa John’s has embraced new concepts (think dessert items) on its menu, which helped power sales initially. However, the sales-driving power of such new items could come into question as times get more challenging. Perhaps consumers are still a bit tired of pizza in general.
Additionally, inflation’s effect on pizza topping prices may be an overhang that could weigh on the value proposition of pizza. In any case, Papa John’s remains an intriguing pizza play for the long haul. Eventually, consumers will get a taste for pizza again, and Papa John’s will be ready to ship out orders with its impressive delivery capabilities.
Undoubtedly, pricier toppings and having to pay and tip the driver may cause a delivery-focused restaurant like Papa John’s to experience a bit of pressure relative to the fast-food plays that aren’t so dependent on delivery orders.
Looking ahead, Papa John’s does have some pretty upbeat expectations ahead of it, as Wedbush pointed out. The stock’s valuation is also a tad stretched, especially compared to Domino’s Pizza’s valuation (discussed below), with shares trading at 43.4 times trailing earnings and ~43 times cash flow.
What is the Price Target for PZZA Stock?
Wall Street’s pretty upbeat on Papa John’s. The average PZZA stock price target of $96.50 implies 17.4% upside from here.
Domino’s Pizza (NYSE:DPZ)
Domino’s Pizza is another pizza giant in the gutter right now. Activist investor Bill Ackman dumped his entire stake last year after being in the name for less than a year and a half. Indeed Ackman’s a long-term investor, but of late, he’s been quick to jump in and out of certain volatile names in this turbulent market.
Though Domino’s is a wonderful company based on its impressive profitability, questions linger as to how the name will hold up when the full force of the next recession is felt.
Domino’s stock is down more than 40% from its 2022 peak, thanks in part to a few underwhelming quarters. Domino’s has missed earnings-per-share estimates for four straight quarters. If the current trend continues, DPZ is at risk of losing ground over rivals such as Papa John’s.
Even after a few tough quarters, analysts aren’t ready to give up on the pizza giant. The stock now trades at an enticing 27.3 times trailing earnings multiple and a 23.9 times cash flow multiple – much lower than PZZA stock. With a 0.73 beta, DPZ stock is expected to be a less choppy ride than the broader market.
Recently, UBS analyst Dennis Geiger named Domino’s as one of his top restaurant picks. He thinks the company has room to improve upon margins this year. As inflation headwinds back down, Domino’s certainly seems like a firm with room to run on the margin front.
What is the Price Target for DPZ Stock?
Wall Street is sticking with Domino’s in its moment of pain. The average DPZ stock price target of $396.00 implies 17.35% upside from current levels.
The Takeaway
Not only do the pizza companies offer customers good value versus their dine-in counterparts, but their impressive delivery capabilities and digital presence are also sources of strength that could help drive demand steadily through turbulent times.
Currently, analysts expect roughly the same amount of upside potential from both pizza stocks.
