Wall Street loves Papa John’s new CEO hire, and the stock is surging (PZZA)

Kate Taylor

Two Wall Street analysts upgraded Papa John’s after the company named a new CEO Tuesday, sending shares up as much as 5.25%.
The new CEO, Rob Lynch, brings years of experience in marketing and led a successful transformation of Arby’s.
Investors are confident that he can guide Papa John’s through a similar transformation.
Watch shares of Papa John’s trade live on Markets Insider.

Wall Street likes Rob Lynch, the new CEO of Papa John’s who was appointed to the top role on Tuesday.

Shares of the pizza chain gained as much as 5.25% early Wednesday after analysts at Stifel and BTIG upgraded their ratings for the company and raised their price targets.

Stifel upgraded Papa John’s to "buy" and increased its price target to $60, a 25% premium from where stock is currently trading at roughly $49. BTIG also updated its rating to "buy" with a $54 price target.

"We believe the newly-appointed CEO’s turnaround experience and marketing expertise improves the company’s prospects," wrote Chris O’Cull, an analyst at Stifel, in a note Wednesday. The change also gives investors a tactical opportunity to weigh the results of the turnaround, he wrote.

The leadership change comes after a difficult year for Papa John’s. In 2018, sales declined 12% across its 5,300 global locations. In March, founder John Schnatter finally stepped down from the board after a battle with the company that began when he used a racial slur on a conference call last year.

Papa John’s "needs a refresh from the branding and marketing side of things," Richard Miller, the founder and managing partner at Gullane Capital Partners, a value hedge fund that holds a long position in the pizza chain, told Markets Insider.

"Somebody who really knows how to run a business and turn things around is a great upgrade," he said of the new CEO.

Lynch led a successful turnaround of Taco Bell

Before joining Papa John’s, Lynch spent six years at Arby’s — two as president of the sandwich chain, leading a global turnaround of the restaurant, and four as the brand president and chief marketing officer. Lynch was also formerly the vice president of marketing at Taco Bell and worked in marketing at Kraft Heinz.

Analysts see Lynch’s successful track record as a big win for Papa John’s.

At Arby’s, "Lynch quickly brought on fresh talent and worked to create a culture that took bold, but calculated, risks," O’Cull wrote. Lynch also sought out expertise to address weaknesses in Arby’s menu. The result was a meaningful margin improvement, according to O’Cull.

Papa John’s franchisee network will also likely see improvement with Lynch at the top of the company. O’Cull expects an early focus in Lynch’s tenure will be to return franchisees to a "healthier level of profitability."

Of the nine analysts that cover the stock, eight have "buy" ratings and only one — Lauren Silberman of Credit Suisse— has a "neutral" rating. The average 12-month price target for Papa John’s shares is $56.63, more than 14% higher than where shares are trading at $49.

Shares of Papa John’s are up 22.5% year-to-date.

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