Wedbush Likes Domino's Pizza, Says Pressure From Third-Party Delivery Is 'Unsustainable'

Domino’s Pizza, Inc. DPZ has received a new initiation of coverage.

The Analyst

Wedbush analyst Nick Setyan initiated coverage on the stock with an Outperform rating and a $280 price target.

The Thesis

Setyan says Domino’s financial model is among the most compelling in the publicly traded 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,” he wrote in a note.

Although the analyst concedes to the fact that competitive intrusion from third-party delivery services are having an impact on Domino’s same-store sales growth, he believes near-term sentiment has turned overly negative.

“We view the current economics of 3PD as unsustainable beyond the near-term from the point of view of both restaurants and third party marketplaces,” he said.

Setyan says the negative impact from delivery is best exemplified in casual dining and despite limited recourse, restaurants are already starting to push back.

The analyst also says the aggressive promotional cadence of third-party delivery service providers is not sustainable and growth is coming at an increasing and unsupportable cost to the providers in a fight for market share.

“While we don’t pretend to have a crystal ball regarding how long the pressure from 3PD can last, we believe franchisees are healthy enough to withstand the pressure," he wrote.

Price Action

Domino’s shares traded around $242.09 at time of publication.

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