NEW YORK -- An analyst is boosting his rating for Papa John's International Inc. and price target for Domino's, saying both pizza companies will likely benefit from more restaurant openings overseas.
KeyBanc Capital Markets' Christopher O'Cull lifted Papa John's to "Buy" from "Hold" and gave the chain a $53 price target. In a client note, the analyst said that that the 7 percent to 8 percent rise in sales at international restaurants open at least a year in 2013 will likely prompt overseas franchisees to speed up restaurant openings.
O'Cull said that the company should see sales rise at U.S. restaurants open at least a year since Papa John's is one of the bigger industry players and can use advanced technology that smaller chains and independent pizza operators can't afford to increase its market share. Papa John's also stands to benefit from lower prices on ingredients like wheat and cheese, he added.
In a separate note, O'Cull said that he also believes international restaurant openings will accelerate at Domino's Pizza Inc., as the chain has only 61 percent penetration in its 10 biggest markets and room to grow in countries such as China. These openings will be the primary driver of the company's earnings per share growth, he added.
O'Cull anticipates that Domino's strong free cash flow will allow it to make an aggressive increase in its quarterly dividend, predicting it may rise by 40 percent when it reports fourth-quarter results in February.
The analyst increased Domino's price target to $80 from $70 and kept a "Buy" rating.
Papa John's shares finished at $45.40 for 2013 and rose 63 percent for the year. Domino's ended 2013 at $69.65 and rose more than 53 percent for the year.