Is Domino’s among the stocks on Wall Street worth sinking one’s teeth into?
Credit Suisse thinks so. The sell-side firm upgraded its rating on the company last week, stating that the stock should be a relative outperformer through the remainder of 2018. The rating went from neutral to outperform.
Jason West, a Credit Suisse analyst, said in a note that the stock has lost about 12 percent of its value from recent highs (as quoted by CNBC.com), and yet forward earnings should get a boost, in part, from tax cuts. In addition, “near-term concerns around competition” are already priced in.
Those competitive threats center around third-party delivery options, where other food juggernauts, such as McDonald’s, are bringing that service option to customers in some metropolitan areas. In the case of the latter firm, partnerships with Uber are the conduits to door-to-door service.
In a survey of more than 1,000 consumers, 77 percent said they have not changed the frequency of their pizza-ordering habits. At the same time, the company has a strong driver and ordering operation in place, which should keep growth intact. As for the underpinnings of growth, said the analyst, look for management to repeat targets at its investor day on Wednesday that call for 6 to 8 percent global unit growth and 8 to 12 percent global sales growth.
West’s price target stands at $220 a share, roughly 15 percent higher than when the note was released on Wednesday.
In reference to valuation, the analyst note stated that the relative price to earnings multiple is 30 percent below the two-year average. Looking at various scenarios, the Credit Suisse analyst said a $250 per share stock price is tied to a bull case that looks “reasonable” and would represent 28 times the 2019 earnings estimate on an upside case, with a downside case that would bring the “bear” scenario to $180, reported Benzinga.
Credit Suisse’s enthusiasm comes against a backdrop where the fast food giant said in its latest quarterly report (for the third quarter) that profits were up more than 19 percent year over year to $56.4 million, and same-store sales were up 8.4 percent for the same period. Bottom line growth outpaced top line traction, where sales gained 13.6 percent to $643.6 million, which topped the Street at just over $627 million.
With the dawn of the new year, the company has boosted its franchise fees (where, for example, there’s a charge paid on each digitally powered transaction — upped from $0.21 to $0.25), which will help offset the cost of technology investments that have been tied to initiatives such as the voice-activated features with Alexa, which were unveiled in mid-2017, and Easy Orders, which debuted in 2013.
Separately, in the third quarter conference call with analysts, CEO Patrick Doyle said of the franchise office system known as PULSE — which integrates store data across payroll and other functions — that “we now have over 70 percent of international stores on PULSE as our point-of-sales system continues to get closer to being a truly worldwide platform,” and stated that there are more than 1,000 stores on the global ordering program. Domino’s, he said, continues to “work with markets both big and small on the opportunities adopting our platform could present in the future.”
As reported this past fall, focused on the United Kingdom, one in five customers who order pizza delivery from Domino’s do so with Alexa.
In other, tech-powered initiatives, this past summer Domino’s teamed with Ford to test out self-driving pizza delivery vehicles in Michigan, following similar tests in New Zealand, where drones and self-driving robots were the delivery vessels of choice.