The Street Reacts To Domino's Q4 Earnings, 25% Stock Rise

Shares of Domino's Pizza, Inc. DPZ gained more than 25% to trade over $370 after the pizza chain delivered a fourth-quarter earnings beat.

The Domino's Pizza Analysts

RBC Capital Markets analyst Christopher Carril maintains an Outperform rating on Domino's Pizza with a price target lifted from $337 to $400.

Stifel analyst Chris O'Cull downgraded from Buy to Hold with a price target lifted from $325 to $365.

Goldman Sachs analyst Katherine Fogertey maintains at Buy, price target lifted from $320 to $400.

RBC: 'Alleviates Concerns'

Domino's earnings "alleviates concerns" related to same-store sales decelerations as management showed sequential improvements in delivery trends, Carril wrote in a note. Specifically, delivery comps were positive and management highlighted aggregator pressures were leveling off in the quarter.

Carryout same-store transactions ended the year higher by 3.9% due to compelling promotions. The analyst said this area will remain a key focus as management hopes to grow digital carryout orders through technology innovation, such as the recently introduced Pie Pass.

The pizza chain's report likely set a path for top-line improvement in 2020, which is an "encouraging sign" as year-over-year comparisons will actually ease in the coming few quarters.

Related Link: Domino's Pizza CEO Talks Q4 Earnings, Competitive Environment

Stifel: New Valuation Concerns

Domino's showed ticket and traffic strength along with positive delivery comp in the fact of ongoing third-party delivery competitors, O'Cull wrote in a note. Looking forward, management's fortressing strategy should continue supporting domestic store growth as it prioritizes speed of service, reducing delivery costs along with incremental carryout traffic while the strategy is deployed.

However, Domino's stock valuation is trading near all-time highs. While these premium valuations are justified, it creates a "less compelling" risk to reward profile for investors.

"We would consider becoming more constructive on pullbacks to the low-to-mid-$300 range," the analyst wrote in a note.

Goldman Sachs: Same-Store Sales Outperformance

The restaurant sector's focus on third-party delivery options makes it obvious demand for delivery is "strong" and a highly promotional environment "drew much of the attention away" from Domino's, Fogertey wrote in a note. The promotional environment is likely to ease in 2020, however, which creates a "clearer path" for Domino's to show same-store sales growth reacceleration.

Domino's should be able to show a 5.6% same-store sales growth in 2020, which is above management's long-term guidance of 2% to 5%. Encouragingly, Fogertey said a 5.6% estimate may even prove to be conservative and doesn't include incremental benefits from product launch in the summer and market share gains from the potential for "sizable" closures at rival Pizza Hut.