Looking For Exposure To The Restaurant Sector? Try McDonald's Instead Of Domino's

Analysts at Argus Research no longer hold a bullish view on the pizza delivery chain Domino's Pizza, Inc. DPZ and suggest instead owning shares of the fast food giant McDonald's Corporation MCD.

Argus' John Staszak downgraded Domino's stock from a Buy rating to a Hold, the first rating change the firm made on the stock since Sept. 15, 2009, when the stock was trading below $10 per share. After an incredible run that has greatly rewarded long-term shareholders, the time may have come for investors to move on.

The pizza delivery chain's recent earnings report is showing signs of a slowdown in international revenue and foreshadowing a slowdown in comparable sales on the domestic front, Staszak noted. In fact, after years of double-digit growth in the U.S. business, the company will likely begin posting a mid-single-digit comp growth rate.

The company's margin growth moving forward will likely be limited as management will need to re-invest in the business, the analyst added. In addition, the company isn't immune to restaurant-wide trends of healthier and gourmet offerings.

Finally, Domino's may also need to contend with a new problem in finding new domestic franchisees, unless it is willing to sacrifice margins in its distribution operations.

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