Pizza Stock in the Dough: Why Is Papa John's Worrying?

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Apparently, the CEO and Chair of Papa John's, John Schnatter, is still very worried about his remarks about Obamacare last year. His statements that the Affordable Care Act would raise the price of the company's pizzas went over like a lead balloon. CNN debunked them fairly quickly and he then backed off.

Now it appears that Schnatter is trying to erase his remarks from the Internet. A small media outlet called The Stabley Times is reporting that its editors have been contacted by a public relations firm to get them to remove, or 'unpublish,' their story about Schnatter's remarks and CNN's fact checking. The Stabley Times is also reporting that the PR firm says it has had great luck in persuading publications to remove the story because they've been dealing with “responsible journalists” and the content has been removed.

Sounds like someone's touchy about his flank.

The real question is, why is Schnatter so scared? Papa John's isn't exactly doing poorly in the wake of his remarks. The firm's is doing well and in November it raised both its EPS guidance and international sales guidance. Why is Schnatter being so jumpy? Something, maybe his ego, maybe some business-related pressure, has him behaving strangely. Let's check on the firm and its competition.

Papa Johns (NASDAQ: PZZA)

Cute stock ticker, I guess. Papa John's is a national-level pizza chain with franchises and company-owned restaurants both domestic and international. With almost 4,000 restaurants and solid growth, you'd think the firm wouldn't be in the mood to paint a target on itself like it has. But Schnatter made his remarks, and as the rules are in journalism – no takebacks. There's no means by which Schnatter gets out of this better off than if he ignored it. Still, there's no evidence by the performance of the company that it's impacting the bottom line. As mentioned, the firm's outperforming expectations and the stock is up 44.9% over the last twelve months. Other than it not paying a dividend, I don't see anything here to give an investor much to worry about … other than the current media hamhandedness.

Domino's (NYSE: DPZ)

Everyone seems to like to work 'PZ' into their tickers in this business. Anyway, Domino's Pizza is one more Pizza place, much like Papa Johns. The firm has a higher market cap and about 6,000 more stores. It's more established in the market, but not so much that Papa John's is at a competitive disadvantage due to anything Schnatter said, for heaven's sake. The firm did pay an apparent one-time $3 dividend last March, but otherwise no dividends to be seen. The firm's stock has been on solid run beginning last July and since then its risen 60.5%. I'll take that over any six month time frame. Telsey Advisory Group even raised its target on DPZ to $51. The stock still has some room to grow if you need some food and beverage stocks in your portfolio.

Yum! (NYSE: YUM)

This is sort of a skew choice, but Yum does own Pizza Hut. Sure, it also owns Taco Bell and KFC and it's enormously larger than DPZ or PZZA, but it does know its pizza. (Disclosure, I worked one summer waiting tables at a Pizza Hut. I profess no loyalty because of it, and by the way, waiting tables is hard work.) Anyway, the firm's been in the news in a negative way, lately. A law firm has announced an investigation into Yum! on behalf of shareholders into federal securities law violations. The alleged violations are about KFC having been supplied chickens that were fed toxic chemical and that the firm knew it and sought to conceal it. This, my dear readers, is EXACTLY the sort of news about which a firm should hire a public relations firm. In addition, another investigation is underway by another firm aimed at the officers and directors of the firm. Unsurprisingly, the firm's stock has been a bit up and down, but reliably trading inside a range of $61 to $74. I'd count on it taking some time to recover on this one.

Remember, the sign of a cover up is often the worst possible media outcome. Both Papa John's and Yum! Are in the middle of this sort of thing, now. One about to pay for the cover up and one actively trying to commit a cover up. But it almost never works as well as people hope. Generally, like it's doing to John Schnatter, it just makes one look worse. Take it from an old journalist, when an exec says something stupid, best for him to just let it go and take his lumps. Heck, apologize, even. That puts it behind you. Anything just hammers the company with questions of 'what's he really hiding'. And that's never good.

Stick with Domino's, no matter how good Papa John's might look.

Good luck!

Follow Nate on Twitter: @natewooley

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Nate Wooley has no position in any stocks mentioned. The Motley Fool owns shares of Papa John's International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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