Amid Fragmented Pizza Market, Domino's Still Has Room To Grow

Domino's Pizza, Inc. DPZ boasts a longer-term growth story in a sizable and fragmented global pizza market coupled with minimum downside in the stock, according to Wall Street's newest bull analyst.

The Analyst

Baird Equity Research's David Tarantino initiated coverage of Domino's Pizza's stock with an Outperform rating and $260 price target.

The Thesis

Domino's should be considered a "powerful growth story" for a few reasons, Tarantino said in the a note. These include a strong value proposition with a differentiated brand positioning, being a leader in food delivery, competitive advantages through technology and digital analytics, and solid execution stemming from high-quality franchisees.

Given Domino's multiple advantages over its peers, the company is likely to continue grabbing market share within the $125 billion a year global pizza market, the analyst wrote. The company continues to build on its advantages at a time when the pizza market is "fragmented" given multiple large and established chains as well as small independent and regional operators.

As part of Domino's business model, 97 percent of units are franchised so the company is likely to deliver a growing stream of income with low capital expenditure requirements, according to Tarantino. This should support higher levels of free cash flow and debt capacity that can be used to finance a "substantial" share buyback program and/or dividends.

Price Action

Shares of Domino's Pizza were trading marginally higher Tuesday at $219.97.

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