Intrinsic value of Papa John's International - PZZA

Previous Close

$46.23

  Intrinsic Value

$7.47

stock screener

  Rating & Target

str. sell

-84%

Previous close

$46.23

 
Intrinsic value

$7.47

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of PZZA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,819
  1,861
  1,909
  1,962
  2,022
  2,087
  2,158
  2,235
  2,318
  2,407
  2,502
  2,604
  2,712
  2,827
  2,949
  3,078
  3,215
  3,359
  3,512
  3,674
  3,844
  4,023
  4,213
  4,412
  4,622
  4,843
  5,076
  5,321
  5,579
  5,850
Variable operating expenses, $m
  1,644
  1,682
  1,725
  1,773
  1,827
  1,885
  1,949
  2,018
  2,093
  2,173
  2,250
  2,341
  2,438
  2,542
  2,651
  2,767
  2,890
  3,021
  3,158
  3,303
  3,456
  3,618
  3,788
  3,967
  4,156
  4,355
  4,564
  4,784
  5,016
  5,260
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,644
  1,682
  1,725
  1,773
  1,827
  1,885
  1,949
  2,018
  2,093
  2,173
  2,250
  2,341
  2,438
  2,542
  2,651
  2,767
  2,890
  3,021
  3,158
  3,303
  3,456
  3,618
  3,788
  3,967
  4,156
  4,355
  4,564
  4,784
  5,016
  5,260
Operating income, $m
  175
  179
  184
  189
  195
  202
  209
  217
  225
  234
  252
  263
  274
  285
  297
  310
  324
  339
  354
  371
  388
  406
  425
  445
  466
  489
  512
  537
  563
  590
EBITDA, $m
  222
  227
  233
  240
  247
  255
  264
  273
  283
  294
  306
  318
  331
  345
  360
  376
  393
  410
  429
  449
  469
  491
  514
  539
  564
  591
  620
  650
  681
  714
Interest expense (income), $m
  7
  25
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  40
  42
  44
  47
  50
  52
  55
  59
  62
  66
  69
  73
Earnings before tax, $m
  150
  163
  167
  172
  177
  183
  189
  195
  203
  210
  227
  236
  245
  255
  266
  277
  289
  302
  315
  329
  343
  359
  375
  393
  411
  430
  450
  471
  494
  517
Tax expense, $m
  40
  44
  45
  46
  48
  49
  51
  53
  55
  57
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  101
  106
  111
  116
  122
  127
  133
  140
Net income, $m
  109
  119
  122
  125
  129
  133
  138
  143
  148
  154
  166
  172
  179
  186
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  344
  360
  377

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  567
  580
  595
  612
  630
  650
  673
  697
  722
  750
  780
  811
  845
  881
  919
  959
  1,002
  1,047
  1,094
  1,145
  1,198
  1,254
  1,313
  1,375
  1,440
  1,509
  1,582
  1,658
  1,739
  1,823
Adjusted assets (=assets-cash), $m
  567
  580
  595
  612
  630
  650
  673
  697
  722
  750
  780
  811
  845
  881
  919
  959
  1,002
  1,047
  1,094
  1,145
  1,198
  1,254
  1,313
  1,375
  1,440
  1,509
  1,582
  1,658
  1,739
  1,823
Revenue / Adjusted assets
  3.208
  3.209
  3.208
  3.206
  3.210
  3.211
  3.207
  3.207
  3.211
  3.209
  3.208
  3.211
  3.209
  3.209
  3.209
  3.210
  3.209
  3.208
  3.210
  3.209
  3.209
  3.208
  3.209
  3.209
  3.210
  3.209
  3.209
  3.209
  3.208
  3.209
Average production assets, $m
  282
  288
  296
  304
  313
  324
  335
  346
  359
  373
  388
  404
  420
  438
  457
  477
  498
  521
  544
  569
  596
  624
  653
  684
  716
  751
  787
  825
  865
  907
Working capital, $m
  31
  32
  32
  33
  34
  35
  37
  38
  39
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
  75
  79
  82
  86
  90
  95
  99
Total debt, $m
  299
  311
  325
  340
  356
  375
  395
  416
  439
  464
  491
  520
  550
  582
  616
  653
  691
  731
  774
  820
  867
  918
  971
  1,027
  1,086
  1,148
  1,213
  1,282
  1,354
  1,430
Total liabilities, $m
  510
  522
  535
  550
  567
  585
  605
  627
  650
  675
  702
  730
  761
  793
  827
  863
  902
  942
  985
  1,030
  1,078
  1,128
  1,182
  1,237
  1,296
  1,358
  1,424
  1,492
  1,565
  1,641
Total equity, $m
  57
  58
  59
  61
  63
  65
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
  182
Total liabilities and equity, $m
  567
  580
  594
  611
  630
  650
  672
  697
  722
  750
  780
  811
  846
  881
  919
  959
  1,002
  1,047
  1,094
  1,144
  1,198
  1,253
  1,313
  1,374
  1,440
  1,509
  1,582
  1,658
  1,739
  1,823
Debt-to-equity ratio
  5.280
  5.370
  5.460
  5.550
  5.660
  5.760
  5.870
  5.980
  6.080
  6.190
  6.300
  6.400
  6.510
  6.610
  6.710
  6.800
  6.900
  6.990
  7.070
  7.160
  7.240
  7.320
  7.400
  7.470
  7.540
  7.600
  7.670
  7.730
  7.790
  7.840
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  109
  119
  122
  125
  129
  133
  138
  143
  148
  154
  166
  172
  179
  186
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  344
  360
  377
Depreciation, amort., depletion, $m
  47
  48
  49
  50
  52
  53
  55
  56
  58
  60
  53
  55
  58
  60
  63
  65
  68
  71
  75
  78
  82
  85
  89
  94
  98
  103
  108
  113
  118
  124
Funds from operations, $m
  157
  167
  171
  176
  181
  186
  192
  199
  206
  213
  219
  228
  237
  247
  257
  268
  279
  291
  304
  318
  332
  348
  363
  380
  398
  417
  436
  457
  479
  502
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
Cash from operations, $m
  156
  166
  170
  175
  180
  185
  191
  198
  204
  212
  217
  226
  235
  245
  255
  266
  277
  289
  302
  315
  329
  344
  360
  377
  394
  413
  432
  453
  474
  497
Maintenance CAPEX, $m
  -38
  -39
  -40
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -118
New CAPEX, $m
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
Cash from investing activities, $m
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -86
  -90
  -95
  -100
  -104
  -110
  -114
  -120
  -127
  -132
  -139
  -146
  -153
  -160
Free cash flow, $m
  112
  121
  123
  126
  129
  132
  136
  140
  144
  149
  152
  157
  163
  169
  176
  183
  190
  198
  207
  216
  225
  235
  245
  257
  268
  281
  293
  307
  321
  337
Issuance/(repayment) of debt, $m
  -167
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
Issuance/(repurchase) of shares, $m
  69
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -98
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
Total cash flow (excl. dividends), $m
  14
  133
  137
  141
  146
  150
  156
  161
  167
  174
  178
  186
  193
  201
  210
  219
  229
  239
  250
  261
  273
  285
  299
  312
  327
  343
  359
  376
  394
  413
Retained Cash Flow (-), $m
  -178
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -165
  132
  135
  139
  144
  148
  154
  159
  165
  171
  175
  182
  190
  198
  206
  215
  224
  234
  245
  256
  268
  280
  293
  306
  321
  336
  351
  368
  386
  404
Discount rate, %
  11.70
  12.29
  12.90
  13.54
  14.22
  14.93
  15.68
  16.46
  17.29
  18.15
  19.06
  20.01
  21.01
  22.06
  23.17
  24.32
  25.54
  26.82
  28.16
  29.57
  31.04
  32.60
  34.23
  35.94
  37.73
  39.62
  41.60
  43.68
  45.87
  48.16
PV of cash for distribution, $m
  -147
  104
  94
  84
  74
  64
  55
  47
  39
  32
  26
  20
  16
  12
  9
  7
  5
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
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Papa John's International, Inc. (Papa John's) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark Papa John's. The Company operates through five segments: domestic Company-owned restaurants, North America commissaries, North America franchising, international operations and all other business units. North America is defined as the United States and Canada. Domestic is defined as the contiguous United States. International franchisees are defined as all franchise operations outside of the United States and Canada. As of December 25, 2016, there were 5,097 Papa John's restaurants in operation, consisting of 744 Company-owned and 4,353 franchised restaurants operating domestically in all 50 states and in 45 countries and territories. It offers pizza along with side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

FINANCIAL RATIOS  of  Papa John's International (PZZA)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 1
Price to Book -423.9
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow 19.3
Growth Rates
Sales Growth Rate 4.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 43.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity -7700%
Total Debt to Equity -7700%
Interest Coverage 24
Management Effectiveness
Return On Assets 21.4%
Ret/ On Assets - 3 Yr. Avg. 17.6%
Return On Total Capital 34.5%
Ret/ On T. Cap. - 3 Yr. Avg. 27.3%
Return On Equity 824%
Return On Equity - 3 Yr. Avg. 340.5%
Asset Turnover 3.4
Profitability Ratios
Gross Margin 20.9%
Gross Margin - 3 Yr. Avg. 29.6%
EBITDA Margin 12.1%
EBITDA Margin - 3 Yr. Avg. 10.7%
Operating Margin 9.7%
Oper. Margin - 3 Yr. Avg. 8.2%
Pre-Tax Margin 9.3%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate 31.4%
Eff/ Tax Rate - 3 Yr. Avg. 31.4%
Payout Ratio 27.2%

PZZA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PZZA stock intrinsic value calculation we used $1783.359 million for the last fiscal year's total revenue generated by Papa John's International. The default revenue input number comes from 0001 income statement of Papa John's International. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PZZA stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.7%, whose default value for PZZA is calculated based on our internal credit rating of Papa John's International, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Papa John's International.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PZZA stock the variable cost ratio is equal to 90.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PZZA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Papa John's International.

Corporate tax rate of 27% is the nominal tax rate for Papa John's International. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PZZA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PZZA are equal to 15.5%.

Life of production assets of 7.3 years is the average useful life of capital assets used in Papa John's International operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PZZA is equal to 1.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-121.711 million for Papa John's International - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 36.889 million for Papa John's International is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Papa John's International at the current share price and the inputted number of shares is $1.7 billion.

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COMPANY NEWS

▶ Judge clears the way for Schnatter lawsuit against Papa John's   [02:24PM  American City Business Journals]
▶ Papa John's to treat O'Hern's departure as termination   [09:09AM  American City Business Journals]
▶ Former Dunkin CEO on Corporate Culture   [05:53PM  Yahoo Finance Video]
▶ Papa John's slices Papa from new tv ad   [01:26PM  Yahoo Finance Video]
▶ Papa Johns launches new Schnatter-free ads, website   [11:40AM  American City Business Journals]
▶ Fast-Food Roundup: McDonald's workers call strike... JPMorgan cuts Papa Johns stake   [Sep-13-18 02:52PM  American City Business Journals]
▶ JPMorgan Slashes Papa John's Stake   [Sep-10-18 11:18AM  Bloomberg]
▶ 2 Stocks I'd Avoid at All Costs   [Sep-08-18 11:20AM  Motley Fool]
▶ Papa John's chief development officer to retire immediately   [04:53PM  American City Business Journals]
▶ Schnatter posts scathing accusations about Papa John's leadership   [11:41AM  American City Business Journals]

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