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Domino's Pizza and Papa John's Make Dough for Investors

By Rick Munarriz - Mar 1, 2016 at 5:22PM

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Two of the leading pizza chains saw their stocks post double-digit percentage gains after posting strong quarterly results.

Image source: Domino's.   

Last week was probably a good one for pizza lovers, but it was definitely a better one for investors in the leading pizza companies. Shares of Domino's Pizza (DPZ 0.36%) and Papa John's (PZZA 2.71%) soared 19% and 17%, respectively, on the week.

The stocks began to heat up after the pie tossers served up fresh financial results.

Domino's revenue soared 15% since a year earlier to clock in at $741.2 million during its fiscal fourth quarter. An extra week helped pad results, but it still was a solid period of growth at the restaurant level. Your local Domino's was pretty busy with domestic comps roaring 10.7% higher and international locations checking in with an 8.6% uptick. The positive global showing stretches Domino's impressive streak of year-over-year international comps growth to 88 quarters. Yes, that's 22 years of consistent growth at the individual eatery level. Earnings grew even faster. 

Papa John's posted mixed results. Revenue of $416.8 million is actually a 2% dip when pitted against the prior year's holiday quarter, but it's not as if the individual eateries were less busy. Comps for Papa John's rose 1.9% domestically and 5.3% internationally. It didn't translate into revenue growth because lower cheese prices worked out to lower commissary sales. It also experienced a year-over-year decline in equipment sales. Earnings of $0.62 a share for the period exceeded the $0.52 a share it posted a year ago and the $0.57 a share that analysts were targeting. It's actually the first time in three quarters that Papa John's beat Wall Street's profit forecasts. 

Pizzerias may not seem like a hotbed of growth. The chains engage in cutthroat promotional campaigns. If you're paying full price for a pizza you're probably not doing a good job of scouring for available coupon codes. 

Domino's and Papa John's also get their fair share of slack from foodies that dismiss national chains in favor of mom and pop pizza joints. However, the numbers don't lie. Papa John's and Domino's continue to thrive, and the competitive climate isn't scaring away franchisees. 

The only group that wasn't exactly sold on the big stock gains last week following the well-received quarterly updates was Wall Street. Jefferies -- already with a hold rating on Papa John's -- lowered its price target on the stock from $64 to $58 late last week. Goldman Sachs removed Domino's from its Americas Conviction Buy list, but it did at least raise its price target to account for the stock's recent pop. 

The climate won't necessarily get any kinder. Pizza snobs will always be there, and the new fast-casual craze of gourmet pizzas that are assembled on the fly has attracted investor interest from some notable casual dining operators. However, until the comps turn negative, we know that mainstream pie lovers don't have a problem with Papa John's and Domino's. At the end of the day, that's all that really matters. 

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Stocks Mentioned

Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$399.02 (0.36%) $1.45
Papa John's International, Inc. Stock Quote
Papa John's International, Inc.
PZZA
$87.47 (2.71%) $2.31

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