On Friday, Evercore ISI adjusted its outlook on Domino's Pizza (NYSE:DPZ) shares, lowering the price target to $500 from the previous $560. The firm sustained its Outperform rating on the shares. The revision follows the company's second-quarter earnings report and subsequent discussions with the management.
The analyst cited a couple of reasons for the price target adjustment, including a projected dip in near-term same-store sales (SSS) and a deceleration in global net unit growth, particularly due to issues faced by Domino's Pizza Enterprises.
The new price target is based on a lower 2025 earnings per share (EPS) estimate of $17.95, which still represents a 10% year-over-year growth, albeit down from the prior forecast of $18.11.
The reduction in the EPS outlook has led to a valuation multiple contraction, with the target price now reflecting a price-to-earnings (P/E) ratio of 28 times the estimated 2025 earnings, aligning with the industry's average P/E and within the historical range.
The analyst acknowledged the disappointment stemming from the update but suggested that the fourth quarter could serve as a turning point for the company. Despite the tough year-over-year comparisons due to previous initiatives like the Emergency Pizza, Loyalty re-launch, and the introduction of Pepperoni-stuffed Cheesy Bread, there is an anticipation of strong promotional and innovation efforts to counterbalance these challenges.
Furthermore, the report points to early 2025 as a significant period when Domino's is expected to begin third-party delivery marketing with DoorDash (NASDAQ:DASH), which could potentially bolster performance. The analyst expressed a belief that the company's strategic moves could provide the necessary momentum to navigate the difficult comparisons in the upcoming quarter.
In other recent news, Domino's Pizza Inc. reported second-quarter sales growth of 4.8%, slightly below the anticipated 4.91%, reflecting cautious consumer spending. Despite this, the company exceeded profit expectations, earning $4.03 per share against the predicted $3.68, and reported a gross margin increase to 39.8% from 39.5% the previous year. The company's overall revenue hit the target with a reported $1.10 billion for the quarter.
In response to flat growth forecasts, Domino's Pizza Enterprises announced plans to close several underperforming stores in Japan and France. Analysts from Macquarie and UBS noted that while the move towards profitability is wise, it is expected to result in a near-term negative impact on earnings projections. Following these developments, Morgan Stanley and Macquarie adjusted their earnings estimates downwards.
Analyst firms Loop Capital and Baird have also weighed in on Domino's recent performance. Loop Capital maintained its Hold rating on Domino's Pizza, while Baird upgraded the company's shares from Neutral to Outperform, raising its price target to $580. These adjustments reflect confidence in Domino's business strategies and market positioning. These are among the recent developments for Domino's Pizza.
InvestingPro Insights
Following the recent adjustments in Domino's Pizza (NYSE:DPZ) outlook by Evercore ISI, insights from InvestingPro provide additional context to the company's financial position and future prospects. According to InvestingPro data, Domino's has a market capitalization of $14.25 billion and a P/E ratio of 26.38, indicating a premium valuation relative to near-term earnings growth, with a PEG ratio of 1.46. Despite a slight revenue decline over the last twelve months, the company has demonstrated resilience with a gross profit margin of 28.48% and an impressive return on assets at 31.9%.
InvestingPro Tips highlight that Domino's has raised its dividend for 10 consecutive years and maintained dividend payments for 13 consecutive years, showcasing a commitment to returning value to shareholders. Additionally, the stock's recent entry into oversold territory, as suggested by the RSI, alongside a significant hit in the last week, may present a potential opportunity for investors considering entry points. Moreover, analysts have revised their earnings upwards for the upcoming period, reflecting optimism about the company's ability to navigate current challenges.
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