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Papa John’s Int’l, Inc. (PZZA), Yum! Brands, Inc. (YUM), Domino’s Pizza, Inc. (DPZ): Food for Thought, and It’s Pizza!

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Papa John's Int'l, Inc. (NASDAQ:PZZA)Here’s an interesting fact: Illitch Holdings, in addition to owning both the Detroit Redwings and the Detroit Tigers, also owns Little Caesars, the nation’s fourth largest pizza chain. But investors can’t grab a piece of that pie, as Illitch is a private company.

But who cares about owning the fourth best anything anyways? When investing in any industry, unless you spot an insanely cheap price, you should limit yourself to la creme de la creme, the best of the best.

With that in mind, let’s take a look at the pizza chains that manage to outsell Little Caesars. And good news, the top three chains are letting investors get in on the action.

First up, the smallest

With 4,163 locations, (includes company-owned and franchises) Papa John’s Int’l, Inc. (NASDAQ:PZZA) is ranked third among American pizza chains in terms of both sales and market cap.

First, a couple of positives. The company has lowered the amount of shares it has outstanding by 19% since the end of 2009. During that time frame it also went from having a working capital deficit to a $23.7 million dollar surplus.

Sadly, a $23.7 million dollar working capital surplus isn’t all that impressive for a company as large as Papa John’s Int’l, Inc. (NASDAQ:PZZA).

What’s more cursory, examination of the company’s financial statements reveals stagnation. The kind of stagnation you don’t want to allocate your capital anywhere near.

Net income for the company has grown at a 4-year compound annual growth rate, or CAGR, of 1.8%. Shareholder’s equity has grown at an absolutely anemic CAGR of 6.5%… of 1% (as in 0.065%).

Recent results have been a little better though. EPS are up 12.6% year-over-year and revenues are up 10.2% year-over-year.

Additionally, Papa John’s Int’l, Inc. (NASDAQ:PZZA) has the lowest margins of all three of the companies I am going to discuss. When it comes to Papa John’s Int’l, Inc. (NASDAQ:PZZA), I would just say no. To the stock at least.

One-third of the largest fast food chain

Largest in terms of total restaurants that is. And the one-third I am referring to is Pizza Hut, the second largest pizza chain in the nation.

Combined locations of Yum! Brands, Inc. (NYSE:YUM), owner of the fast food triad that is KFC, Taco Bell, and Pizza Hut, total 38,535. That’s the largest of any publicly traded fast food company in the world (Mickey D’s has 34,480) and second only to Subway.

I found it difficult to find figures on how just Pizza Hut performed. But that doesn’t really matter since if you purchase the stock you aren’t just buying Pizza Hut, you’re getting the whole package.

Looking at the stock chart it appears that owning Yum! Brands, Inc. (NYSE:YUM) has been quite the roller coaster lately. As I write this, the company is valued at $32.2 billion, does that valuation make for an attractive investment?

Yum! Brands, Inc. (NYSE:YUM) does have the highest net profit margins of any of these three companies. And its portfolio of brands has incredible intrinsic value, the kind that can’t be measured by any financial statement.

Then again, the company is running a working capital deficit of $191 million. But that is probably negligible considering how the company has grown shareholder’s equity over the past four years. During that time period, equity more than doubled and now stands at $2.29 billion.

Sales have grown at a 4-year CAGR of 5.9%, and in 2012 were $13.6 billion. Net income has grown at an even more rapid 4-year CAGR of 10.5%. 2012 net income for Yum! Brands, Inc. (NYSE:YUM) was $1.6 billion.

Additionally the company currently pays a dividend of 1.9%. Not the highest in the world, but a whole lot better than the 0% over at Papa John’s Int’l, Inc. (NASDAQ:PZZA).

One thing I don’t quite understand about Yum! Brands, Inc. (NYSE:YUM) is the way the company is conducting share repurchases. Beginning in 2011, the company began buying back its own shares which may have made sense at the time.

What I don’t get is why the company has continued its buybacks in 2012 and the first quarter of this year. Management might be attempting to give a jolt to a stock that’s gone practically nowhere in the past year.

But in my eyes that’s a terrible way to squander the shareholder’s money. Warren Buffett says that a company should only conduct buybacks when management believes shares are undervalued.

Unless management knows something I don’t, which they very well might, this company is not undervalued, at least not significantly. My examination of the company is telling me that this is a fairly valued company at best, certainly not a bargain.

Explosive growth

Patrick Doyle deserves some sort of award. I mean the turnaround that guy has engineered at Domino’s Pizza, Inc. (NYSE:DPZ) is nothing short of incredible.

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