Pizza delivery restaurant chain Papa John’s International (NASDAQ: PZZA)
shares have been recovering since bottoming out in the 38s during the racism scandal with its founder John Schnatter in 2018. NBA Hall of Famer Shaquille O’Neal was brought onboard as the company’s brand ambassador and spokesman joining its board of directors and buying into nine Atlantic-based franchise locations in March 2019. O’Neal was a legitimate addition to the team helping to quell racism and diversity concerns. The turnaround narrative driven by new CEO Rob Lynch, former president of Arby’s, O’Neal and activist engagement have encouraged investors that the Schnatter era is behind them. Sentiment was further bolstered when competitor Domino’s Pizza (NYSE: DPZ)
released blowout Q4 2020 earnings on Feb. 20, 2020 rocketing its shares 25-percent higher and lifting PZZA shares in sympathy.
PZZA reports fiscal year Q4 2020 earnings pre-market Feb. 26, 2020 followed by an 8:00 am EST conference call. Consensus analyst estimates are for $0.32-EPS profit on revenues of $403.74 million. Management had an uplifting Q3 2019 earnings presentation as topline revenues grew to $403.7 million beating consensus analyst estimates of $384.5 million and YoY bottom-line improvement of a loss of (0.10) EPS vs. (0.42). Investors want to see continued acceleration in the turnaround and visibility on growth initiatives. While DPZ shares bolstered sentiment, it also set a high bar for PZZA. Any disappointment and unforeseen shortfalls could cripple the recovery. The timing of PZZA earnings comes as the S&P 500 (NYSEARCA: SPY) peaked all-time highs near the 339.28 Fibonacci (fib) level triggering a daily stochastic cross down sell-off, further putting pressure on PZZA to stand on its own and deliver a blowout quarter. As of Jan. 15, 2020, there is a 36.16-percent short interest of the small float of 24.68 million shares. This makes the shares highly susceptible to a short squeeze.
Rifle Chart Technical Analysis Trajectories: Longer-Term
We use the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The monthly chart has been in a bullish stochastic mini pup since breaking out through the 54.23 fib with expanding upper Bollinger Bands (BBs) near the 73.18 fib. The monthly 5-period moving average (MA) support sits at 63.78 and 15-period MA near the 52.24 fib. The weekly stochastic has remained in a zero-gravity state above the 80-band stochastic since triggering the mini pup breakout through the 57.11 fib with upper BBs at the 72.38 fib. While the weekly stochastic has peaked crossing down, it remains elevated above the 80 band and still far from the 5-period MA support near the 66.28 fib. The weekly 15-period MA support overlaps the monthly 5-period MA at 63.80 fib. The daily charts indicate a potential doji and MSH unless PZZA can breakout through the 70.19 MSH versus the 5-period MA.
The direct sympathy stock and top pizza industry competitor is DPZ. While DPZ did blowout expectations with their earnings, PZZA results can still impact DPZ. When a laggard reports after the leader, a case of the tail wagging the dog often emerges especially if there is an opposite gap. If the magnitude of the earnings gap is excessive, then positive correlation with the restaurant sector may emerge. Extreme strength or weakness in PZZA shares could have a marginal impact on Yum! Brands (NYSE: YUM) and Darden Restaurants (NYSE: DRI) despite being in different segments of the restaurant industry.
Trading Game Plan for Earnings Gap:
This information is accommodative to intraday and short-term traders looking to play the earnings gap. PZZA reports earnings pre-market on Wed. Feb. 26, 2020 followed by an 8:00am EST conference call. This means shares will already be impacted by the gap ahead of the market open. Traders should prepare for the morning session off the opening bell for best tradeable price action. Spreads will be wide due to the smaller float on thin liquidity enabling scalps from 0.25 to 0.75 and eventually getting smaller as spreads tighten. Reversion scalps off the key price inflections levels can be played for the second gap reaction then shift focus to the third reaction trend move. The gap price reversion levels for the upside earnings gaps are: 73.18 fib/monthly upper BBs, 75.61 stinky 5s zone, 77.59 stinky 2.50s zone, 80.28 fib and 82.29 fib. Downside gap reversion price levels are: 66.28 fib, 64.48 sticky 5s zone, 62.56 stinky 2.50s zone, 57.11 super fib and 54.23 fib monthly mini pup breakout fib. The in-between fibs can be treated as additional price inflection points intraday as the third reaction trending move shapes up.