Papa John’s Announces Largest Domestic Franchisee Development Agreement; Shares Pop 2.5%

Papa John’s International, Inc. (PZZA) has signed a deal with top U.S. franchisee operator Sun Holdings, Inc. to open 100 new stores in high-growth markets across Texas by 2029. The deal marks Papa John’s largest domestic franchisee development agreement and reaffirms the brand’s accelerating development momentum. Following the news, shares popped 2.5%, closing at $128.30 on September 29.

Papa John’s is an American pizza restaurant franchise with headquarters in Louisville, Ky, and reported strong new store growth in the first half of 2021. (See Papa John’s stock charts on TipRanks)

Commenting on the deal, Amanda Clark, Papa John’s Chief Development Officer, said, “Papa John’s development flywheel has started to take off. With industry-leading paybacks and our key strategy of making it easy for franchisees to say yes to developing, we can attract great new partners to our brand.”

Clark added, “Sun Holdings is a successful and well-financed operator who understands the Texas market and brings deep expertise within the QSR space that will benefit the entire Papa John’s system.”

Sun Holdings is ranked as the third-largest franchisee in the U.S. and has earned prestigious awards since its inception in 1997. The company supports multiple brands with more than 1,000 locations across 12 states and has helped create more than 22,000 jobs.

Guillermo Perales, President, and CEO of Sun Holdings said, “Since its founding, Sun Holdings has taken a long-term, disciplined approach when making growth investments. Papa John’s fits our criteria perfectly. We see tremendous potential in this premium brand, backed by an innovative culture and highly attractive economics. We know Texas well and see an immense opportunity to grow Papa John’s across this dynamic region.”

This is the second major development deal in the quarter. Recently, Papa John’s announced a deal with Drake Food Service International to acquire over 60 locations in the U.K. and open more than 220 new restaurants across Latin America, Spain, Portugal, and the U.K.

In response to the news, Stifel Nicolaus analyst Christopher O`Cull maintained a Buy rating on the stock with a price target of $140, implying 9.1% upside potential to current levels.

The analyst noted that the recent announcements provide him with added confidence for the development outlook for the brand. Moreover, the analyst believes that the CEO’s turnaround experience increases PZZA’s growth prospects.

O`Cull said, “We expect the company will continue to improve the domestic system’s promotional messaging and help shape future menu and marketing campaigns. Given the importance of effective advertising spend in the space, we are more confident in sustained franchisee sales growth and profitability, which should allow for increased domestic development, improved commissary profits, and better store-level profits in coming years.”

Overall, the stock commands a Strong Buy consensus rating based on 9 Buys and 2 Holds. The average Papa John’s price target of $131.45 implies 2.5% upside potential to current levels. Shares have gained 55.9% over the past year.