Papa John's Stock Downgraded Before Earnings

Papa John's earnings are due ahead of Wednesday's open

Nov 4, 2019 at 10:51 AM
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Jefferies downgraded Papa John's International, Inc. (NASDAQ:PZZA) to "hold" from "buy," but left its $58 price target intact. The brokerage firm said "material upside" to sales seem unlikely given increased competition in the pizza delivery space, and believes that while same-store sales will improve in coming quarters, this is already priced into the shares. In reaction, PZZA stock is down 3.5% at $55.93.

History suggests Papa John's stock could bounce back later this week, with the pizza maker slated to report third-quarter earnings before the market opens on Wednesday. The equity has closed higher the day after the company reports earnings in each of the past four quarters, averaging a gain of 3%. The options market, meanwhile, is pricing in a massive 11.3% next-day move this time around, regardless of direction.

Despite the security's upbeat earnings history, skepticism has been ramping up in other corners of Wall Street, too. For starters, short interest surged 17.5% in the most recent reporting period to 9.46 million shares. This represents 36.1% of PZZA stock's available float, or 9.4 times the average daily pace of trading.

Meanwhile, at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Papa John's 10-day put/call volume ratio of 1.06 ranks in the 62nd annual percentile. What this means is that puts have been bought to open at a quicker-than-usual clip in recent weeks, albeit amid relatively low absolute volume.

Looking at the charts, PZZA shares have been making a beeline higher since skimming the $41.50 region in late August. The stock came within striking distance of its Nov. 15 annual high of $60.56 last Friday, when it topped out at an intraday peak of $59.71. And although the security is notably lower today, its 20-day moving average is once again emerging as support, just as it did in late September and early October.

pzza stock daily price chart on nov 4


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