Papa John’s (PZZA) Plummets 10% as Take-Private Deal Collapses—Wall Street Left Holding the Pizza Box

Another 'smart money' play turns into a grease fire.

Papa John’s stock (PZZA) cratered 10% after reports surfaced that its much-hyped take-private deal got yanked faster than a burnt pizza from the oven. The Street’s latest 'can’t-miss' opportunity? More like a missed delivery.

Wall Street’s flavor-of-the-month private equity appetite seems to have vanished—right after the appetizer. Maybe the due diligence revealed something shocking, like the fact that no amount of garlic butter can make leveraged buyouts taste good in a 5% rate environment.

Active verbs only? Try: PZZA shares got hammered, investors bailed, and bankers scrambled to justify their fees. The only thing rising faster than the stock’s volatility? The irony of PE firms suddenly remembering that restaurants are actually risky businesses.

Closer: Another reminder that when Wall Street says 'this time it’s different,' they mean the bagholders will be different.

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The private equity firm has reportedly had second thoughts about its bid to take Papa John’s private at $64 per share. Apollo previously submitted an offer for Papa John’s along with fellow private equity firm Irth Capital Management.

News that the take-private deal is off the table comes before Papa John’s is due to report its third-quarter financial results on Nov. 6. News that the deal has been canceled also comes as restaurants and other consumer companies report sluggish sales as the U.S. economy slows.

Restaurant Sector

A week ago, Chipotle Mexican Grill (CMG) reported a 0.8% traffic decline, the third consecutive quarter of decreases amid a pullback in consumer spending on eating out and other discretionary items. Also recently, consumer goods giant Procter & Gamble (PG) reported that its lower-income customers are significantly reining in their spending.

News that Papa John’s might not be taken private by Apollo Global arrives on the same day that Yum Brands (YUM) said it plans to review strategic options for the Pizza Hut restaurant chain that it owns, including a potential sale of the struggling chain.

Is PZZA Stock a Buy?

The stock of Papa John’s has a consensus Moderate Buy rating among 10 Wall Street analysts. That rating is based on three Buy and seven Hold recommendations issued in the last three months. The average PZZA price target of $52.29 implies 21.18% upside from current levels.