TOPLINE
While most of the restaurant industry reels from the economic impact of coronavirus, pizza chains are thriving and sending their stocks higher thanks to a surge in online orders and steady demand during the pandemic.
Companies like Domino’s and Papa John’s have seen sales skyrocket in recent months.
David L. Ryan/Boston Globe via Getty Images
KEY FACTS
Domino’s and Papa John’s recently provided impressive mid-quarter business updates as stay-at-home orders during the pandemic forced customers to turn to online orders and delivery options more regularly.
Domino’s and Papa John’s, which trade for $366 per share and $77 per share, respectively, have been soaring in recent weeks; Domino’s stock is up 26% in 2020, while Papa John’s is up 23%.
Papa John’s said on Wednesday that same-store sales shot up 33.5% in North America and 7% globally since last month—the second straight month of the “best sales period in the company’s history.”
Similarly, at Domino’s Pizza, U.S. sales have “accelerated materially” in recent months, jumping 14% since late March and 21% in the last month alone.
Longbow Research says it’s confident both companies will continue to see the benefits of the delivery and take-out model through the current environment and beyond; the firm has a “buy” rating on both stocks with a price target of $441 per share for Domino’s and $95 per share for Papa John’s.
MKM Partners says that both companies “are doing the right things operationally” and are “well positioned both strategically and financially” to weather the current crisis.
But MKM has concerns about the companies’ recent valuations and has assigned a neutral rating to both stocks; It has a $350 per share price target for Domino’s and a $72 per share price target for Papa John’s.
What to watch for
Even as Domino’s and Papa John’s outperform in a challenging environment, Pizza Hut continues to struggle. Yum! Brands, the parent company of Pizza Hut which also owns brands like Taco Bell and KFC, has seen its stock fall over 12% so far this year. The stock has rebounded to some degree over the past few months, jumping 32% in April and May. According to Yum! Brands’ first quarter earnings, Pizza Hut’s same-store sales plunged 11% during that period. Pizza Hut’s interim U.S. president Kevin Hochman is confident that the chain can make a recovery, telling Yahoo! Finance in an interview earlier this week that “we want to get back to being America’s favorite pizza… we made tremendous progress even over the last ten weeks.”
Key background
The coronavirus has accelerated a shift toward digital sales for many restaurants with much of those gains “likely to be maintained longer-term,” according to UBS analyst, Dennis Geiger. The firm expects digital and mobile growth, “which was already an increased focus for larger chains,” to continue well beyond the pandemic.
Chief critic
It remains to be seen whether booming pizza sales will continue as more of the country reopens. “Some of these gains in May should subside in June because dining rooms are reopening and people are starting to venture out a little more,” says Bloomberg Intelligence restaurant analyst Michael Halen. At some point, as quarantine orders are lifted, sales will inevitably decline to normal levels, he adds. A second surge of coronavirus in the fall or winter, however, “would obviously be a boon for sales again.”
Further reading
Dow Closes Above 25,000 For First Time Since March (Forbes)
Dow Surges 500 Points As Investors Bet On A Coronavirus Vaccine Breakthrough (Forbes)
Here Are 13 Stocks That Both Hedge Funds And Mutual Funds Are Buying Up (Forbes)
Buy These Stay-At-Home Stocks For The Coronavirus Economy, Market Experts Say (Forbes)
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