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Can Domino’s Pizza Stock Sustain Its Uptrend?

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  • Domino’s Pizza stock has risen about 16% since the company posted its Q3 results on October 8.
  • Competitive headwinds and lower EPS growth could slow DPZ stock.

Despite releasing disappointing third-quarter earnings results on October 8, Domino’s Pizza (DPZ) has seen its stock rise by about 16% since. The company’s revenue and earnings fell short of Wall Street’s expectations.

It marked its fifth straight quarter of missing analysts’ estimate, and its comps were also below their expectations. Furthermore, Domino’s EPS growth decelerated significantly in the third quarter.

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In comparison, Yum! Brands (YUM) stock has fallen about 10% since the company posted weaker-than-expected third-quarter results on October 30. Its EPS fell more than 23% year-over-year to $0.80, missing analysts’ estimate of $0.90 by a wide margin. Papa John’s (PZZA) stock has risen about 8% since the company published its third-quarter results on November 6.

What’s driving Domino’s Pizza stock?

Despite Domino’s weaker-than-expected financial performance, its stock has continued to rise. The company’s new $1 billion share repurchase program and lower outstanding share count are likely to drive its bottom line. Furthermore, Domino’s has lowered its general and administrative expense outlook to $380 million–$385 million from $390 million–$395 million, which could also support its bottom line.

Analysts see limited upside for DPZ

Wall Street has a favorable outlook on DPZ, with 14 of 27 analysts suggesting “buy,” 12 suggesting “hold,” and one suggesting “sell.” Their price target of $284.44 for Domino’s stock implies a mere 1.3% upside from its November 8 closing price of $280.66.

We think Domino’s store base expansion, lower costs, and share repurchases could support its sales and EPS, and in turn, its stock. However, its potential seems limited, given its recent uptrend. Moreover, competition in the quick-delivery segment could hurt Domino’s sales growth. This year, Domino’s has risen 13.2%, while Papa John’s and Yum! Brands stocks have risen 55.1% and 7.6%, respectively.

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