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Pizza Joints Continue To Make Dough

Posted: Feb 27, 2009 10:52 AM by Glenn Curtis

Tickers in this Article: EAT, DRI, BKC, MCD, PZZA, DPZ

Just because the economy is stuck in neutral doesn't mean consumers have stopped going out to eat. In fact, people continue to spend money, but on fast food fare rather than at traditional restaurants. And this explains why stocks like McDonald's (NYSE:MCD) and Burger King (NYSE:BKC) are outperforming those of Brinker International (NYSE:EAT), of Chili's renown, and Darden (NYSE:DRI), best known for Red Lobster and LongHorn.

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But big name burger joints aren't the only ones thriving. Pizza chains are doing well, too. Filling, tasty and inexpensive, pizzas cook up the right recipe for a challenging economic environment.

So let's take a look at the potential upside of two of the big name pizza chains.

Pizza Chains
Michigan-based Domino's (NYSE:DPZ) recently released fourth quarter results that showed an earnings gain of 19 cents per share. Although its earnings per share (EPS) falls below the 26 cents EPS from the same time last year, it still beat analyst expectations by 2 cents. (Learn how to interpret earnings results in What You Need To Know About Financial Statements.)

Meanwhile, Domino's generated $428.2 million in revenue, which was just north of the $425.23 million anticipated by the Street.

Domino's bought back more than 136,000 shares in the quarter ended December 28, which reflects the board's confidence in the stock. Because the company could have saved the money or plunged it back into the business, this buyback speaks volumes.

According to Thomson Financial Networks, analysts expect the company to earn 74 cents per share in 2009. Currently trading around $6.50, the stock would face a solid upside if it were to meet that number.

Competition
Domino's wasn't the only chain reporting better than expected news this past week, as competitor Papa John's (Nasdaq:PZZA) also reported a head turner of a fourth quarter. At 48 cents per share, Papa John's surpassed analyst expectations of 41 cents, excluding items. In addition, it also bought back shares recently, just like its rival. According to the company's press release, Papa John's spent nearly $5 million to buy back shares between year-end 2008 and about mid-February 2009.

To add the pepperoni to the pie, Papa John's offered share guidance of $1.36 to $1.44 for 2009, which is a bump up from its previous guidance. According to Thomson Financial Networks, its 2009 guidance exceeds the $1.35 per share the analyst community is expecting. (Learn more about analyst opinions in Buy, Sell Or Hold?.)

Last Slice
The big pizza makers are coming off of a solid quarter, despite the continued downturn of the economy. Therefore, Domino's and Papa John's could see some upside going forward. Currently trading at nine times the 74 cents per share estimate for 2009, Yahoo! Finance anticipates the company will grow 10% per year for the next five years. Meanwhile, Papa John's trades at about 16 times the current 2009 estimate and is expected to grow 12% per year for the next five years.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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