A political “disruption” sweeping the country – damaging sales at certain restaurant stocks – could benefit one worldwide pizza chain, a pair of KeyBanc Capital Market Analysts note. But its not just social unrest and a historic US election that could benefit this stock. The launch of deep dish pizza product nationwide could boost revenue above expectations.

Papa Johns
Graphic credit: KeyBank

US consumers may experience a “disruption” due to Olympics, a highly watched US election season and social concerns

A disruption of consumer behavior is currently occurring, not only because of troubling shootings in the US and terrorist events oversees, but other events are keeping consumers indoors. “This political season is going to be highly watched along with the Olympics,” KeyBanc analyst Chris O’Cull told ValueWalk.  “This will lead to enhanced demand for pizza delivery.” In such an environment, there is one stock that might just benefit: Papa John’s International.

Conventional restaurant traffic has been down 3-5% over the past several weeks. What is the Casual Dining Restaurant (CDR) segment’s loss is Papa John’s gain, is the thesis of KeyBanc analysts O’Cull and his partner David Carlson. On Tuesday, the pair upgraded shares of PZZA to Overweight from Sector Weight in part on a social disruption investing thesis.

“We believe the civil and political disruptions that have negatively impacted restaurant dining may be helping pizza operators that deliver to consumers,” they wrote in their analysis. They don’t think US consumers have “entrenched,” but more likely have “shifted more in favor of convenience, benefiting pizza delivery operators like Papa John’s.”

How long will this positive environment last for Papa Johns?

O’Cull and Carlson don’t have the world’s answers at their hands when ValueWalk asked the analysts for specifics. But looking logically at volatility, they “expect this phenomenon will play out at least through the general election in November.”

papa johns pizza
[Photo Credit: Jason Lam, Flickr]

Beyond social trends disrupting normal behavior, the introduction of pan pizza could be a method to increase the average check size

The KeyBanc analysis thinks that enhanced demand for home delivery “could lead to upward EPS revisions over the next few quarters.”

“In our recent investor sentiment survey, respondents indicated they are anticipating PZZA 2Q (earnings per share) in line with the Street mean of $0.53,” the report noted, pointing to a $0.03 miss on their $0.56 estimate. “We believe investors’ near-term neutral sentiment toward PZZA reflects a ‘missed it’ mentality following a meaningful recovery.” Papa Johns is currently just 12% off its 52-week high.

When looking at marketing and product mix, O’Cull and Carlson clearly see two points.

First, there is sports marketing that is likely to continue to bolster the core business trajectory. Papa Johns is most notable in NFL football telecasts but has also broadened the successful advertising approach into other sports.

Another innovation the analysts think could lead to significant success is the re-introduction of pan pizza.

The chain recently tested the concept in four markets during the second quarter and it was popular outside Chicago. Papa Johns had previously tested deep dish without success but now thinks the time is right for a larger product roll-out. In part, O’Cull thinks Papa John’s rewards program and demographic database will better identify potential deep dish pizza lovers. He explained the deep dish product they are rolling out is not true Chicago-style deep dish, but more of a mainstream offering similar to that Domino’s successfully introduced in 2012-2013.

The success of pan pizza could help lift sales estimates throughout 2016. Pan pizza may attract a different user, but will more likely boost the check average, O’Cull said. KeyBanc currently has a 4-5% domestic sales target for the second quarter of 2016 – well above the street consensus of 2.1%.

It could be domestic concerns driving the franchise’s success – or a deep dish pan pizza. At this point visibility is constrained.