After a tough start for the year for Sonic Corp. (Nasdaq: SONC) and Papa John’s International ( PZZA), Citi analyst Gregory Badishkanian has regained his appetite back for both fast food stocks. On Monday, Badishkanian initiated coverage of Papa John’s and Sonic with “buy” ratings and said long-term investors shouldn’t worry about their underperformance so far in 2017.
Badishkanian says Papa John’s unique business model, advertising campaigns and management team separate the company from its pizza peers. But while shares of rivals Domino’s Pizza ( DPZ) and Yum Brands ( YUM) are up roughly 20 percent in 2017, Papa John’s stock is down 14 percent year-to-date.
[See: 10 Long-Term Investing Strategies That Work.]
Despite steadily rising revenue and the recent implementation of an aggressive $500 million share repurchase program, Papa John’s investors have been concerned over decelerating profit growth and falling same-store sales numbers.
According to Badishkanian, investors shouldn’t get too hung up on same-store sales.
“While we expect [same-store sales] and [earnings before interest, tax, depreciation and amortization] growth to slow somewhat versus the past three years, we believe prospects for unit growth and share gains remain attractive,” he says in the research note.
Finally, he believes sentiment concerning domestic pricing pressures is too negative and has created an attractive value opportunity for long-term investors.
Badishkanian says Sonic has also been unfairly punished in the market this year and the stock has all the makings of a great restaurant investment. Sonic’s earnings growth has evaporated and revenue growth has dipped into negative territory in the past four quarters. However, at a forward price-earnings ratio of less than 18, Badishkanian says the stock is now a solid value.
“The company’s differentiated concept, proven operating methods, diverse menu, refreshed value proposition and seasoned management team differentiate the company from many of its competitors, and we do not believe these factors are fully reflected in the stock’s current valuation given recent price action/multiple compression,” Badishkanian writes.
[Read: Why Warren Buffett Loves Buy-and-Hold Stocks.]
In addition to the “buy” ratings, Citi has a $90 price target for Papa John’s stock and a $28 price target for Sonic stock.
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Sonic, Papa John’s Struggles Will Be Short-Lived originally appeared on usnews.com
