Domino's Pizza Poised To Beat Street Estimates, Cowen Says In Upgrade

The bullish case for Domino's Pizza, Inc. DPZ is based on expectations for the pizza chain to show strong earnings growth over the coming years — and the near-term Street estimates are too pessimistic, according to Cowen.

The Domino's Pizza Analyst: Andrew Charles upgraded Domino's Pizza from Market Perform to Outperform with a price target lifted from $445 to $450.

The Domino's Pizza Takeaways: The Domino's management team deserves credit for performing well during the COVID-19 pandemic while remaining focused on long-term growth through new initiatives, Charles said in a Friday upgrade note.

The initiatives include new menu items, technological innovation, expanded value offerings and an ad fund correlated with sales growth, the analyst said. 

These initiatives should show benefits right away and position the company to beat near-term Street estimates, he said. 

The third-quarter U.S. comp growth estimates of 12.6% and fourth-quarter U.S. comp growth estimates of 7.2% imply a deceleration that is "too steep," Charles said. 

A gradual reopening of restaurants from May to June didn't impact Domino's sales as one would have expected, the analyst said.

The company showed 20% to 21% comp growth from May to June, and this suggests the unwinding of Domino's off-premise sales will be slow, he said. 

Domino's recent momentum and ongoing initiatives should position the pizza chain to grow earnings per share at a compounded annual growth rate of 14% through 2023, Charles said.

Domino's stock looks "attractive on a total return basis" and has room for multiple expansion, according to Cowen. 

DPZ Price Action: Shares of Domino's were trading higher by 1.78% at $396.18 at last check Friday. 

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Photo courtesy of Domino's.