Pizza Stocks at All-Time Highs Ahead of Earnings

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Pizza Stocks at All-Time Highs Ahead of Earnings

Following the first quarter’s pandemic fall, pizza stocks have risen to new highs, completing historic turnarounds. At the outset of the closure, big companies took a beating, with Domino’s Pizza Inc. (DPZ) losing approximately 28% and competitor Papa John’s International, Inc. (PZZA) losing a stomach-churning 58%. Sales data indicated that Americans who were stranded at home ate more tomato pies than at any other time in pizza history, generating vertical rally waves that cut V-shaped patterns back to past highs.

Because pizza has been hand-delivered to consumers for more than 130 years, these companies are better positioned than other restaurant businesses to capitalize on roped-off dine-in portions. When Naples chef Raffaele Esposito was instructed to provide meals to visiting King Umberto I and Queen Margherita, she became ill after eating rotten food. Raffaele personally handed his most recent recipe, the famous margherita pie.

The group’s largest difficulty is competition, with public chains competing against thousands of smaller enterprises. This disadvantages small businesses since they are obliged to book sales by listing alongside rivals on large delivery hubs such as Uber Technologies, Inc.’s (UBER) UberEats and Grubhub Inc. (GRUB).Large corporations may avoid these intermediaries by establishing their own delivery fleets and online portals, enabling them to save expenses and retain a larger percentage of each transaction.

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In the pre-market on Thursday, Domino’s Pizza will announce results, with analysts predicting $2.25 EPS on $913 million in sales in the second quarter of 2020. For several years, the stock has been an amazing performer, setting a continuous string of new highs. It peaked slightly over $300 in the third quarter of 2018 before entering a trading range with an 18-month low in September 2019. Following that, the uptrend struck range resistance in December, ahead of a February breakthrough that was swiftly sold.

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Price movement filled the 68-point breakout gap in March, triggering severe sell signals, but the slide subsequently reversed, pushing the stock back to the previous high in April. It maintained gains into this week before breaking out again, reaching an all-time high of $417 on Monday. The accumulation-distribution indicator on-balance volume (OBV) has also reached a new high, providing a strong tailwind. Nonetheless, to retain these stratospheric levels, the firm may need to deliver solid profits and a bright outlook, since relative strength readings have reached very overbought levels, triggering reversals in 2016 and 2018.

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On August 4, Papa John’s will announce profits, with analysts predicting $0.49 per share on $467 million in sales in the second quarter of 2020. In recent years, the firm has seen ups and downs, most notably a well-publicized incident that led former CEO and founder John Schnatter to depart. A long-term uptrend peaked in the mid $70s in 2015, resulting in a severe decline and a failed breakout after the 2016 presidential election.

In 2018, the stock fell to a four-year low in the mid $30s after breaking range support. It struck a seven-year low in March 2020 after posting two higher lows in the third quarter of 2019. Aggressive buyers then jumped in, pushing the price over $90 for the first time since January 2017. This week, OBV also reached a new high, paving the way for more rises in the coming weeks.

The Bottom Line

Following severe first-quarter drops, major pizza chains are trading at record highs, casting an optimistic tone ahead into second-quarter 2020 earnings reports.

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Disclosure: At the time of publishing, the author had shares of Uber in a family account but no holdings in the other securities listed.

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