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Wall Street Analyst Says Papa John’s May Need To Subsidize Franchisees

Stifel downgraded the stock to sell and wrote the pizza chain needs to commit to an everyday low price menu that could hurt profits

By Emily ClouseStaff Writer
3:15PM 02/19/19

Despite a $200 million investment from an activist hedge fund just two weeks ago, Papa John’s continues to face an uphill battle. According to CNBC, Wall Street analyst Chris O'Cull of Stifel Financial Corp. downgraded the pizza chain’s stock from hold to sell this week, warning that to keep up with competitors, the brand may need to make big changes instead of running promotions.

"In order for Papa John's to drive transactions we believe it will need to commit to an everyday low price menu that will probably hurt franchisees' profits until consumer perception of its value changes," CNBC reports that O'Cull wrote. "These offers are clearly designed to drive transactions, but to be successful they must increase transactions enough to offset the dollar impact of the discount, otherwise the results lower store margin percentage and dollars."

Stifel sliced Papa John’s 2019 earnings per share from $1.20 to $.80, well below the Wall Street estimate of $1.19, and cut its stock price target to $35, down from last Friday’s close of $45.26, according to the article.

Read the full article here.