Why Pizza Giants Will Keep Thriving After the Pandemic

COVID-19 has forced many companies to change how they do business, with whole industries shifting to more online models. However, the name of the game for restaurants during the government-mandated COVID-19 lockdowns has been delivery, and nobody does that better than pizza companies. A recent Credit Suisse report details why pizza companies could continue to benefit even after the pandemic.

[in-text-ad]

In the report, Domino’s Pizza Inc. (NYSE: DPZ | DPZ Price Prediction) was reiterated with an Outperform rating and a $445 price target, implying an upside of 5% from the most recent closing price of $423.46.

Papa John’s International Inc. (NASDAQ: PZZA) was reiterated with an Outperform rating and a $110 price target, which implies upside of 28% from the most recent close at $85.77.

[nativounit]

Credit Suisse noted that Domino’s and Papa John’s have been among the best-performing stocks in its coverage throughout the pandemic, with Domino’s up 44% and Papa John’s up 36% year to date. The firm believes this setup remains favorable for the pizza segment over the next couple of quarters for these reasons:

• Expectations for a subset of the population to remain hesitant to dine out
• Benefits from the shift in occasions to large, family meals as people continue to work from home and many kids are enrolled in full or partial virtual learning
• The return of sports, with consumers likely to shift to at-home watch parties in lieu of watching at restaurants or bars

Credit Suisse also noted that sports have an impact on the pizza segment to an outsized degree, with the shareable, value-driven and globally appealing meal top-of-mind for many watch parties. The firm believes pizza offers compelling value should there be increased fears of an economic downturn.

While the growth of third-party delivery was a structural challenge for the pizza segment pre-COVID-19, Credit Suisse believes the spotlight on the economics and increased regulations around third-party delivery could ease the incremental headwinds presented by these companies going forward.

Here’s what the firm had to say specifically about Domino’s:

We continue to view Domino’s as among the best positioned restaurants in this environment, and expect sustainable benefits from growth in digital utilization (digital mix increased to ~75%) and loyalty (loyalty customers tend to be stickier with loyalty program designed to increase occasions) going forward. Beyond pandemic-related tailwinds and positive category dynamics, Domino’s value leadership and best order-to-delivery experience in restaurants should support ongoing outperformance.

Credit Suisse said about Papa John’s:

Papa John’s provided its final 3Q business update, with global SSS trends sustained at impressive rates. North America SSS were 18.4% in Period 9 (8/24-9/27), including company SSS of 14.3% & franchised SSS of 19.7%, and 23.8% in 3Q (company 18.2%; franchised 25.5%). International SSS were 23.3% in Period 9 & 20.6% in 3Q. September SSS appear to have been slightly above buy-side expectations, with Papa John’s stock having pulled back ~15% from 2Q earnings amidst expectations for SSS deceleration. In recent weeks, Papa John’s announced it signed its largest North America franchise development agreement in 20+ years & plans to open a new global HQ in Atlanta, underscoring the shift in the company narrative from turnaround to growth. We believe the confluence of a favorable pizza backdrop, execution of company initiatives (menu innovation, marketing, loyalty) and unit growth acceleration support top & bottom line upside potential.

Domino’s Pizza stock traded up about 1% to $427.27 on Wednesday, in a 52-week range of $227.50 to $428.54. The consensus price target is $431.12.

Papa John’s International stock was down about 3%, at $83.54 in a 52-week range of $28.55 to $102.25. The consensus price target is $106.21.

[recirclink id=770012][wallst_email_signup]