UPDATE: Miller Tabak Upgrades Domino's Pizza

Miller Tabak came out with a note on Domino’s Pizza DPZ Monday. Analyst Stephen Anderson upgraded Domino’s from Hold to Buy and maintained his $81 price target.

Anderson’s analysis leads him to expect mid-single-digit same-restaurant growth which will aid the forecasted 20 percent gain to EPS through “at-least 2015.”

Domino’s is expected to continue to move away from being price-focused and is expected to pay more attention to convenience and product. This is a restatement of the thesis Anderson published in July regarding the four-year-old campaign of two-medium pizzas for $5.99 as a way to “springboard [customers to] new menu items such a Pan Pizza and Specialty Chicken.”

Selective menu pricing increases are already underway. The top-line catalyst will be strong organic non-U.S. growth (+7.7 percent international comps) coupled with “promising development opportunities in Eastern Europe and Africa” while the company’s limited exposure to China “provides a less risky international play….in the near term.”

Domino’s is expected to add 600 units outside of the Untied States in 2014, while adding another 650-700 each year for the next two years.

Looking at valuation, Anderson maintained the forward P/E of 23x and said this is a fair multiple “for a stock generating about 20 (percent) EPS through the end of 2015.” Multiplying the $3.50 2015 EPS by 23 leads to $80.48 or a fair-value estimate.

Domino's Share Price And EPS Actual/Estimates - Data Provided By Capital IQ

The monkey wrench in the Domino’s upgrade may be pork prices. Anderson highlighted that pork accounts for five percent to 10 percent of Domino’s foods costs. Should the commodity continue to rise, the benefit gained from the recent drop in Cash Cheese prices will be canceled out.

In afternoon trading Monday, Domino's was up  1.7 percent to $71.36.