Looking For Exposure To The Restaurant Sector? Try McDonald's Instead Of Domino's

Analysts at Argus Research no longer hold a bullish view on the pizza delivery chain Domino's Pizza, Inc. (NYSE: DPZ) and suggest instead owning shares of the fast food giant McDonald's Corporation (NYSE: MCD).

Argus' John Staszak downgraded Domino's stock from a Buy rating to a Hold, the first rating change the firm made on the stock since Sept. 15, 2009, when the stock was trading below $10 per share. After an incredible run that has greatly rewarded long-term shareholders, the time may have come for investors to move on.

The pizza delivery chain's recent earnings report is showing signs of a slowdown in international revenue and foreshadowing a slowdown in comparable sales on the domestic front, Staszak noted. In fact, after years of double-digit growth in the U.S. business, the company will likely begin posting a mid-single-digit comp growth rate.

The company's margin growth moving forward will likely be limited as management will need to re-invest in the business, the analyst added. In addition, the company isn't immune to restaurant-wide trends of healthier and gourmet offerings.

Finally, Domino's may also need to contend with a new problem in finding new domestic franchisees, unless it is willing to sacrifice margins in its distribution operations.

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