Despite Lackluster Quarter, Sell-Side Says Domino's Will Eventually Beat Back New Third-Party Delivery Competition

Domino’s Pizza, Inc. DPZ was in the delivery business before delivery was so cool, and it will withstand the current onslaught of new food delivery companies, analysts said as they kept bullish ratings intact despite mixed third-quarter results.

The Analysts

Wedbush analyst Nick Setyan maintained an Outperform rating and $280 price target on the stock.

Morgan Stanley’s John Glass kept an Overweight rating on the stock with a $287 target price.

Stephens analyst Will Slabaugh has an Overweight rating with a $300 price target on the stock.

Bank of America analyst Gregory Francfort reiterated a Buy rating and $295 target price.

Baird Equity's David Tarantino kept an Outperform rating on the stock but lowered the target price from $315 to $300.

Narrow Q3 Miss

Domino’s narrowly missed EPS and sales estimates with its third-quarter print on Tuesday.

But Francfort noted comparable store sales were up 2.4%, and said Domino's has a strong model in brand density through what Domino's calls "fortressing," building more stores in its strongest markets.

Tarantino remains optimistic domestic comps are stabilizing and based on that and confidence in long-term fundamentals, "we still think the one-year-out risk/reward on the stock leans favorably at current levels."

Glass also found things to like, including more focus on product innovation, promotions and service initiatives that he believes could improve sales in 2020.

See Also: Domino's Pizza Is Testing Autonomous Delivery Vehicles

Eventually Domino's Will Deliver

Remember when delivery usually meant pizza, and Domino’s was the brand in that space? Now, there’s a surge of companies popping up that want to bring hot, fresh eats to your door, from GrubHub Inc. GRUB to Uber Technologies Inc. UBER.

Slabaugh noted the concern investors have about these third-party delivery companies, particularly as those companies and the restaurants they work with continue to use price cuts as an incentive for new customers.

“DPZ has undoubtedly felt the pressure from this phenomenon,” Slabaugh wrote in a note. And there’s no clear sign on when the discounting will subside, but Domino's CEO Ritch Allison said on the earnings call it can’t go on forever, and sell-side analysts agreed.

“Once the true costs for these orders are realized, DPZ’s superior value proposition and delivery experience will win over time,” Slabaugh said.

Setyan: “We view DPZ's financial model as among the most compelling in the publicly traded restaurants universe. We believe sentiment is overly negative in the near-term and we view the current intensity of third-party delivery's intrusion as unsustainable.”

Price Action

Domino's traded around $241.14 per share at time of publication.

Photo courtesy of Domino's Pizza.