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Why Deutsche Bank Downgraded Domino’s Pizza

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Deutsche Bank’s recommendations

On April 4, 2018, Brett Levy of Deutsche Bank downgraded Domino’s Pizza (DPZ) from a “buy” rating to a “hold.” However, he maintained his 12-month target price of $235. In December 2017, Levy initiated coverage of Domino’s with a “buy” rating and a target price of $210. In February 2018, he raised the target price to $235.

Since the beginning of 2018, Domino’s stock has risen 22.5%. Levy believes that the recent rise in the stock and its valuation multiple are overstretched. He also believes that the overall pizza restaurant business has become more competitive.

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Other analysts’ recommendations

On February 21, 2018, Oppenheimer raised its target price for Domino’s from $230 to $240. Bernstein raised its target price from $200 to $230, and Credit Suisse increased its target price from $235 to $245. However, that same day, Barclays lowered its target price from $240 to $230.

Of the 21 analysts following Domino’s, 57.1% are recommending a “buy,” and the remaining 42.9% are recommending a “hold.” None of the analysts are recommending a “sell.” Analysts on average are expecting the stock to reach $238.05 in the next 12 months, which represents a return potential of 2.9%.

Domino’s stock typically moves in tandem with analysts’ ratings. When analysts raise their target prices, the stock tends to rise, and vice versa. Currently, Domino’s is trading below analysts’ 12-month target price. However, that doesn’t mean an automatic “buy.” Investors are advised to analyze analysts’ estimates before making any investment decisions.

The target prices and return potentials of Domino’s peers are as follows:

  • Papa John’s (PZZA): $62.52, which is close to analysts’ 12-month target price of $62.50
  • Yum! Brands (YUM): $85.78, which represents a return potential of 0.4%
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