10:42 AM EST, 12/13/2024 (MT Newswires) -- Papa John's International's (PZZA) strategy to revive transaction growth is expected to pay off next year, with the pizza restaurant operator's "realistic" short- and medium-term goals, Wedbush Securities said in a Friday client note.

The company held an investor and analyst meeting on Thursday. Management highlighted menu pricing above inflation and a negative gap in perception of its loyalty and digital offering as key drivers of recent underperformance in transaction growth, according to the brokerage.

Over the near and medium term, the company will be increasingly focused on its value offering, Papa pairings, which accounts for about 25% of sales, Wedbush said. The company is already seeing improved transaction trends in the fourth quarter amid a marketing push, according to the brokerage.

"Beyond the near-term upped marketing spend, changes to loyalty redemption and incremental value focus, management is also refocusing on core menu items/operational simplification, a more impactful marketing strategy, and a holistic approach to customer-facing technology," Wedbush analyst Nick Setyan wrote in the note.

The company's cash-on-cash returns are "compelling enough" for organic US growth acceleration if transactions rebound, according to Wedbush. Management will also focus on consolidating its franchisee base over the next two to three years, particularly in overly fragmented markets.

Given the investments required to bring Papa John's turnaround efforts into fruition, visibility into its margins and earnings before interest, taxes, depreciation and amortization for next year remains limited, the brokerage said. For 2025, Wedbush currently estimates the company to record operating profit of $145.8 million and EBITDA of $219.4 million.

"Despite near-term challenges, we believe (Papa John's) current valuation is an overly pessimistic assessment of management's ability to reaccelerate top- and bottom-line annual growth rates over the medium- to longer-term," according to Setyan.

Wedbush maintained its outperform rating on Papa John's stock and the 12-month price target of $60.

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