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Papa John's (PZZA) Q1 Earnings: What's in Store this Time?

Papa John's International Inc.PZZA is set to report first quarter 2016 earnings next week. Last quarter, the company had posted positive results. It managed to beat the Zacks Consensus Estimate in two of the trailing four quarters with in line results in one quarter. Its average four-quarter positive earnings surprise is 2.62%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Papa John's has been delivering positive comps in both the domestic and international markets since the beginning of 2014. The company’s brand revitalization initiatives such as unit expansion, menu innovation and international expansion have contributed significantly to its comps growth.

Meanwhile, the company is investing in technology-driven initiatives, like digital ordering, in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. These initiatives are expected to positively impact results in the soon-to-be-reported quarter. On the other hand, costs incurred to execute these initiatives are likely to dent profits in the quarter.

Also, like other restaurants, rising labor costs, remains a material headwind for the company. Additionally, with many of Papa John’s restaurants located in international markets, the company remains highly vulnerable to fluctuations in exchange rates. Hence, unfavorable foreign exchange translation may hurt sales and profits in the international markets in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Papa John’s is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 63 cents. Hence, the company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%.
 
Zacks Rank: Papa John’s carries a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies in the restaurant industry which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Bojangles', Inc. BOJA, with an Earnings ESP of +5.88% and a Zacks Rank #3.

Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +0.91% and a Zacks Rank #3  

The Wendy's Company WEN, with an Earnings ESP of +16.67% and a Zacks Rank #1

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
WENDYS CO/THE (WEN): Free Stock Analysis Report
 
PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
 
BOJANGLES INC (BOJA): Free Stock Analysis Report
 
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