10 Analysts React To Domino's Earnings: 'It Deserves A Premium Valuation'

Domino's Pizza, Inc. DPZ shares lost 0.64% Friday after the company reported first-quarter earnings and revenue beats but withdrew its long-term guidance.

On Thursday, Domino's reported first-quarter EPS of $3.07 on revenue of $873.1 million. Both numbers beat consensus analyst estimates of $2.32 and $868.7 million, respectively. Domino's also said U.S. same-store sales were up 7.1% from March 23 to April 19.

The stock traded slightly lower on Friday after the company said there were too many unknowns about the economy, the pandemic and Domino’s operations to continue to rely on previous two- to three-year guidance.

Several Wall Street analysts have weighed in on Domino’s stock since the earnings report. Here’s a sampling of what they’ve had to say.

Near-Term Earnings Risk

UBS analyst Ben Gilbert said Domino’s is facing near-term earnings risk that may limit upside for the stock. “We believe earnings and balance sheet risk from COVID-19 is manageable and transitory, with potential benefits longer term via accelerating the shift to online food delivery, as well as trading down as the economy slows,” Gilbert wrote.

Wells Fargo analyst Jon Tower said the COVID-19 crisis is changing consumer consumption. “We do not see 1Q trends that were potentially softer than expectations mattering for shares when the late March-to-present lockdown for most U.S. markets has proven a net NT benefit for DPZ,” Tower wrote.

Bank of America analyst Gregory Francfort said Domino's management is leaning into its competitive strengths. “We also note Domino’s competitive set of Pizza Hut (dine-in focused model) and independents (who lack similar technology capabilities) should see greater coronavirus-driven pressure than Domino’s which will likely allow the company to bring forward what was already a long-term tailwind of industry share consolidation,” Francfort wrote.

Franchise Model Advantage

Credit Suisse analyst Lauren Silberman said the Domino’s U.S. franchisees system is a valuable asset for the company. “We believe nearly all US franchisees should be eligible for the PPP loans, which we estimate would be ~$70K per store if funded,” Silberman wrote.

Stephens analyst James Rutherford said Domino’s is performing admirably in an extremely difficult environment. “Domino's is one of the few restaurants that is growing its business during the crisis that faces the broader restaurant industry, and for that reason it deserves a premium valuation,” Rutherford wrote.

RBC Capital Markets analyst Christopher Carril said Domino’s domestic business is strengthening, but he is keeping a close eye on its international business. “International performance varies widely across geographies, however, and is overall challenged—though this should abate as stores reopen—creating some downward pressure on 2Q profit outlook,” Carril wrote.

Return To Expansion

Stifel analyst Chris O'Cull said the lack of evening gatherings and events, such as sports and concerts, has resulted in a decline in evening business. “We view the EPS volatility to be a short-term issue and expect many franchisees will return to building new units, a core ingredient to Domino's reliable cash flow growth, as they gain confidence operating in the new environment,” O’Cull wrote.

Jefferies analyst Alexander Slagle said Domino’s has best-in-class resilience in the COVID-19 era, but that advantage is already priced into the stock. “While we believe the QSR asset-lite category is the most defensive way to play in restaurants right now and DPZ likely fares best in many respects, investors have attached a meaningful premium for this defensive positioning,” Slagle wrote.

Same-Store Sales Growth

Deutsche Bank analyst Brian Mullan said true underlying trends in the restaurant business will be difficult to decipher in the near-term, but Dominos is one of the best-positioned stocks to navigate the situation. “DPZ is about as well positioned as a restaurant company could possibly hope to be for the current COVID-19 impacted industry environment, and this morning's 1Q20 and 2QTD domestic SSS results are reflective of that reality,” Mullan wrote.

Tigress Research analyst Ivan Feinseth said Domino’s is gaining meaningful market share from mom-and-pop competitors. “Results have been driven by strong brand equity and extensive delivery partnerships, along with increased advertising and digital marketing spending,” Feinseth said.

DPZ Ratings, Price Targets

• UBS has a Neutral rating and lowered the price target on Australian Domino's stock from A$51 ($32.66) to A$50.80 ($32.53). 
• Wells Fargo has an Equal Weight rating and increased the price target from $316 to $334.
• Bank of America has a Buy rating and increased the price target from $370 to $405. 
• Stephens has an Overweight rating and increased the price target from $350 to $410. 
• RBC has an Outperform rating and increased the price target from $391 to $406.
• Stifel has a Hold rating and increased the price target from $335 to $350.
• Jefferies has a Hold rating and increased the price target from $355 to $370.
• Deutsche Bank has a Hold rating and $333 target.

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Photo courtesy of Domino's.