Papa John's 2023 EPS estimates overly optimistic, Jack in the Box has a lack of catalysts

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By Sam Boughedda

Wedbush analysts downgraded Papa John's (NASDAQ:PZZA) and Jack in the Box (NASDAQ:JACK) to Neutral from Outperform in a note focused on restaurant stocks on Wednesday.

Despite the downgrade, they increased the firm's price target on Papa John's to $92 from $85.

The analysts said that while PZZA is one of the stocks that offers the most compelling customer value proposition, its 2023 consensus EPS estimate seems overly optimistic, and the stock is currently trading in line with the firm's price target.

"Our PT represents a 30.1x P/E multiple on our 2023 EPS estimate. This is a ~20% premium to PZZA's 10-year pre-COVID median fwd. P/E multiple of 25.1x. We believe such a premium is warranted given our belief that our 2022 EPS estimate is a 'trough' EPS estimate, and growth will outpace PZZA's historical growth rates starting in 2023. However, we also believe that further multiple expansion will be difficult given our view that current 2023 consensus margin estimates may prove overly optimistic," the analysts said regarding PZZA.

On Jack in the Box, the analysts cut the firm's price target on the stock to $75 from $100, writing: "We view JACK's current valuation as a reflection of a relatively less favorable value offering at JIB, ongoing uncertainty regarding Del Taco's refranchising path/its potential impact on estimates, and relatively less visibility into margin trends (particularly with no CFO at the helm). We also see little in the way of catalysts to maintain our OUTPERFORM rating. Therefore, we downgrade shares of JACK."