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Deutsche Bank’s ‘Buy’ Rating Raises Domino’s Stock Price

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Stock performance

The initiation of Deutsche Bank’s coverage of Domino’s Pizza’s (DPZ) with a “buy” rating appears to have increased investors’ confidence, leading Domino’s stock price to rise. By the end of December 18, 2017, Domino’s was trading at $186.0, a rise of 0.50% over its previous day’s closing price.

In 3Q17, Domino’s posted EPS (earnings per share) of $1.27 on revenue of $643.6 million. Analysts had expected the company to post EPS of $1.22 on revenue of $627.4.

Despite outperforming analysts’ revenue and EPS estimates, the company saw its stock price fall due to the deceleration of its SSSG (same-store sales growth) in its domestic company-owned restaurants. In 3Q17, the company reported SSSG of 8.4% in its company-owned restaurants in the United States—a fall compared to 11.2% in 2Q17. Since the announcement of its 3Q17 earnings, the stock’s price has fallen 11.1%.

Year-to-date performance

Since the beginning of 2017, Domino’s stock price has risen 16.8%. During the same period, its peers Papa John’s (PZZA) and Yum! Brands (YUM) have returned -32.6% and 31.2%, respectively.

The broader comparative indexes, the SPDR Dow Jones Industrial Average ETF (DIA) and the S&P 500 Index (SPX), have returned 25.5% and 20.2% year-to-date, respectively. DIA has invested ~43% of its holdings in restaurant and travel companies.

Valuation multiple

As of December 18, 2017, Domino’s was trading at 27.2x compared to its level of 31.8x before the announcement of its 3Q17 earnings. On the same day, its peers Papa John’s and Yum! Brands were trading at 19.9x and 26.4x, respectively.

Analysts’ expectations

For the next four quarters, analysts expect Domino’s to post EPS of $6.57 on revenue of $3.0 billion. Compared to the corresponding four quarters of the previous year, the company’s EPS are expected to rise 23.3%, while its revenue is expected to rise 11.0%.

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