Domino’s Stock Rises on Stock Upgrade

On January 4, Credit Suisse and Oppenheimer upgraded Domino’s Pizza (DPZ) from “market perform” to “outperform,” which appears to have increased investors’ confidence, leading to a rise in the stock price. By the end of the day, Domino’s was trading at $197.29, which represents growth of 2.9% from its previous day’s closing price.

In 3Q17, Domino’s posted EPS (earnings per share) of $1.27 on revenues of $643.6 million. Analysts had forecasted that the company would post EPS of $1.22 on revenues of $627.4 million. Although Domino’s 3Q17 earnings were better than expected, the company’s stock has fallen 5.7% since the announcement of its 3Q17 earnings. The decceleration in the company’s SSSG (same-store sales growth) in the United States could have led to a decline in the company’s stock price.

2017 has been a good year for Domino’s with its stock returning 18.7%. Peers Papa John’s (PZZA) and Yum! Brands (YUM) have returned -31.5% and 30.0%, respectively. The broader comparative indices, the S&P 500 Index (SPX), and the iShares U.S. Consumer Services ETF (IYC) have returned 21.2%, and 20.8%, in 2017, respectively.

Due to high visibility in Domino’s earnings, we have considered forward PE (price-to-earnings) multiple for our analysis. Forward PE multiple is calculated by dividing the company’s stock price from analysts’ earnings estimate for next four quarters. As of January 4, 2017, Domino’s was trading at a forward PE multiple of 28.4x. On the same day, Yum! Brands (YUM), Papa John’s (PZZA) were trading at a forward PE multiple of 25.8x, and 20.8x, respectively.

Next, we will look at analysts’ revenue expectations for next four quarters.