Here's How the Pizza Market Is Shaping Up for Stocks in 2019

(Bloomberg) -- As pie lovers gear up for National Pizza Day on Saturday, investors are grappling with mixed stock performances for the largest U.S. chains. Is now a good time to grab a slice or top off current holdings? Here’s a look at the three major players:

Domino’s Pizza Inc.

Domino’s is trying to build on its momentum in 2018, when shares rose 31 percent. At an investor day on Jan. 17, Chief Executive Officer Richard Allison laid out a strategy to become “the dominant number one pizza player in the world,” which he defined as 25,000 stores worldwide and $25 billion in global retail sales by 2025. The plan resonated with investors, and the stock has added another 17 percent so far this year.

These goals are “very realistic given their current sales trends and the trajectory of their unit growth,” BTIG analyst Peter Saleh said in a phone interview. He sees technological innovations helping to drive sales, including an update to Domino’s mobile app that allows customers to earn loyalty points by taking pictures of pizzas. Saleh has a buy rating on the stock and his $335 price target is the highest on Wall Street.

Read more: BI Primer on Domino’s Technological Edge Feeding Market-Share Gain

Yum! Brands Inc.

Yum shares reported flat fourth-quarter sales at its Pizza Hut chain on Thursday, better than the decline that analysts expected. Yum is betting Pizza Hut’s performance will turn around with improved delivery and promotions. However, this contributed to a sharp erosion of operating margin last quarter. BMO Capital Markets analyst Andrew Strelzik said in a note to clients that “Pizza Hut continues to be a work in progress despite significant efforts to date to enhance performance.”

Saleh was more positive about the results, saying that “the NFL partnership in the U.S. and the five dollar lineup at Pizza Hut are gaining some traction with the consumer.” Shares of Yum are up less than 3 percent so far this year, trailing consumer-discretionary stocks and the broader market.

Papa John’s International Inc.

Papa John’s may be due for a rebound. This week, the embattled chain took a $200 million investment from Starboard Value LP and added the fund’s chief executive officer to its board as chairman. The moves followed a tumultuous 2018, which saw shares fall 29 percent amid a sales slump and founder John Schnatter’s resignation as chairman after using a racial slur. The stock rose 12 percent this week, its best weekly performance since February 2016.

Saleh said the Starboard investment could bring fresh ideas of how to turn sales around. “The best-case scenario here is that Starboard can help them stop the bleed on the market share losses and turn it back the other way,” he said, adding that this may take time as North America comparable sales were down 10.5 percent in January. Not everyone is convinced though -- short sellers piled into the stock over the last week, bringing short interest to 27 percent of the float, according to financial analytics firm S3 Partners.

Both Domino’s and Papa John’s will offer more clues when they report their fourth quarter results on Feb. 21 and Feb. 26, respectively.

--With assistance from Leslie Patton.

To contact the reporter on this story: Donald Moore in New York at dmoore71@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Catherine Larkin

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