The shares of this restaurant company were also just initiated as ‘Outperform’ by Baird.
Domino’s Pizza Inc (DPZ)
From Argus Weekly Staff Report
We are upgrading Domino’s Pizza Inc. (DPZ) from HOLD to BUY and setting a target price of $260. At current prices, we believe that DPZ shares inadequately reflect prospects for rapid earnings growth and increased market share. Reflecting management’s long-term plan to increase the store count by 6%-8% annually, we think that revenue growth will be increasingly driven by the opening of new restaurants.
In addition, Domino’s franchised business model reduces its exposure to rising costs and benefits margins. We also expect the company’s loyalty program, as well as its mobile and online ordering systems, to boost domestic comps in the coming quarters. Digital orders accounted for 63% of orders in 2017, up from 60% in 2016.
DPZ shares are trading at 26.7-times our 2018 EPS estimate and at 23.3-times our 2019 forecast. Since the company’s IPO in July 2004, they have traded at an average projected P/E of 17.4. The price/sales ratio of 3.4 and the price/cash flow multiple of 15.4 are also above peer averages.
However, we believe that these multiples inadequately reflect prospects for solid same-store sales, new restaurant openings, and reduced costs under the franchised business model. We are boosting our 2018 EPS estimate to $8.30 from $6.25, reflecting the company’s history of positive earnings surprises and the accelerated pace of new U.S. store openings.
We are setting a 2019 EPS estimate of $9.50. Based on prospects for accelerating unit expansion in the U.S. and continued sales growth, we are raising our rating to BUY with a target price of $260. Our long-term rating is now also BUY.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, March 12, 2018