On Tuesday, RBC Capital adjusted its outlook on Domino's Pizza (NYSE:DPZ) Enterprises Ltd. (DOM:LN) (OTC: DPUKY) shares, decreasing the price target to £3.90 from the previous £4.00. Despite the reduction, the firm continues to recommend the stock as an Outperform.
The revision followed the company's report of a first-half earnings miss, which was approximately 5.5% below the consensus estimate at the EBITDA level. The shortfall was attributed to a combination of weaker trading and increased discounting offered to franchisees.
However, the analyst noted that Domino's has seen improving volume trends since mid-May, ahead of the European Football Championship, suggesting that the company's discounting strategy might be gaining traction.
Domino's has historically faced challenges with its price perception among consumers, and the recent strategic pricing adjustments could signal a positive shift. The analyst's commentary highlighted that the lower prices enabled by discounting may be a pivotal move for the company.
Following the price target adjustment, the shares of Domino's Pizza are now trading at approximately 9.2 times the firm's forecasted FY25 EBITDA estimates. The new target price of 390 pence is derived from a discounted cash flow model and implies a valuation of around 11.5 times the estimated EBITDA.
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