J.P Morgan Downgrades Domino's Pizza, Eyes On UberEats Launch

J.P Morgan analyst John Ivankoe downgraded Domino’s Pizza Inc DPZ to Neutral from Overweight, raising the forecast to $430 from $420.

Domino’s registered global retail sales growth (excluding foreign currency impact) was 4.9% for the fourth quarter.

Per the analyst, Domino’s has been an idiosyncratic improving top-line growth story in a broadly decelerating environment (mostly pricing-driven). 

The stock has been downgraded based on the simple proposition that it is now fully priced in the shares.

Overall, improvements in customer-facing tech, store operations, a new loyalty program, and the fourth quarter Uber Technologies, Inc.’s UBER UberEats will result in an accelerating comp + unit growth outlook through F28 in a broadly decelerating sector.

BMO Capital Markets analyst Andrew Strelzik reiterated an Outperform rating on Domino’s, raising the price target to $535 from $475, citing January promotions, weather benefits, and building contributions from Uber Eats.

After the quarterly results, the company appears to have solid visibility to 2024 unit growth acceleration in U.S. given its new unit development pipeline that benefits from the addition of more than 60 new franchisees to the system, the analyst notes.

Domino’s remains among the only beneficiaries of food cost deflation, supporting strong supply chain profitability improvement, which will continue at least through first quarter of 2024, Strelzik adds.

The analyst expects solid expansion of restaurant margin improvements in 2024 owing to transaction growth, the benign food cost backdrop, low-single-digit pricing, and operational improvements.

Domino’s initiatives position it well against a challenging industry traffic backdrop with a proven set of sales drivers and a value-oriented consumer environment that is moving in the firm’s favor, the analyst adds.

Overall, the analyst projects attractive risk/reward as the company’s more aggressive sales-driving approach, operational improvements, and strengthening franchisee profitability can lead to improving unit growth, earnings upside, and multiple expansions. 

Longer term, Domino’s is an attractive growth vehicle driven by its strong sales growth opportunity, premium brand, digital leadership, and attractive cash flow, Strelzik adds.

Price Action: DPZ shares are trading lower by 2.84% to $445.98 on the last check Tuesday. 

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