5 More Beaten-Down Turnaround Candidates for 2018

Papa John’s

Papa John’s International Inc. (NASDAQ: PZZA) was down over 24% in 2017, with the owner getting into the NFL player debates effectively getting him forced out of his own company. That being said, Papa John’s closed 2017 at $56.11 per share, and its shares were at $59.00 after the first full week of trading in 2018.

Whether you can blame any weakness in Papa John’s sales to weakness in the NFL remains up for debate, but the stellar CEO at Domino’s has now signaled his resignation, and that may make for a slightly less stable top competitor in the world of pizza delivery. Papa John’s has a 1.6% dividend yield, but it is still valued at about 21 times expected earnings.

What makes for an interesting story here is that one of the drivers of weak NFL ratings has been the endless number of injuries of key players in the 2017–18 season. Many of those key players will be back next year, and analysts are calling for revenues to still rise 4% for the past year and 2.3% in the coming year. What if growth turns out to be better? Papa John’s should also be a tax reform winner after having had effective rates of just above 30% in each of the past three years.

The pizza delivery chain’s shares have a 52-week range of $55.05 to $87.85 and a consensus price target of $70.25. The market cap is $2.1 billion.

Rite Aid

Rite Aid Corp. (NYSE: RAD) was down an embarrassing 76% in 2017, after regulators blocked an acquisition of the company. Now the drug store chain has sold off a slew of branches and supposedly wants to rekindle some dominance. The one consideration to keep in mind here is that Rite Aid is unlikely to ever reach the same value as expected in the past due to its much smaller footprint.

At $1.97 apiece at the end of 2017, and even after earnings were lackluster, Rite Aid’s shares after more than a week of trading in 2018 were at $2.13. Rite Aid could be a big winner in tax reform as it is expected to have a 35% rate in 2017 and a lower rate in 2018. Perhaps more important is that Rite Aid is expected to get back to a small profit in calendar 2019, but what if that return to profit comes back sooner than expected?

Rite Aid has a 52-week trading range of $1.38 to $8.77 and a consensus price target of $2.11. Its market cap is $2.1 billion.

Sally Beauty

Sally Beauty Holdings Inc. (NYSE: SBH) was down about 29% in 2017, and after closing the year at $18.76, its shares were down at $17.80 just over a week into 2018. This do-it-yourself chain for buying beauty supplies has small format stores that are not the most expensive to operate. It also should be a destination for ways to save money if economic times are an issue.

Sally could be a winner under tax reform as well, with an effective rate that was above 37% for each of the past three years and expected to remain that way. What’s amazing is the drop in the stock price at Sally Beauty has been worse than its earnings, and earnings are expected to be up in 2018 and 2019. It’s also valued at less than 10 times expected earnings, and analyst downgrades seem to almost have too negative of a tone to them. This company also has been thought of as a company that could be taken private by small private equity players.

Sally Beauty has traded in a 52-week range of $14.05 to $26.98, but this was almost a $35 stock in 2015. It also had a consensus analyst target of $16.60, and its market cap is $2.4 billion.

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