Domino's Pizza Gains Another Bull: Argus Upgrades To Buy

Domino's Pizza, Inc. (NYSE: DPZ)'s stock was upgraded by Baird Tuesday, and another sell-side firm turned bullish on the pizza chain Wednesday. 

The Analyst

Argus' John Staszak upgraded Domino's Pizza's stock rating from Hold to Buy and set a $260 price target. 

The Thesis

Domino's' stock is trading at 26.7x its estimated 2018 EPS, which fails to reflect the pizza chain's prospects for "rapid" earnings growth and market share gains over the coming years, Staszak said in the upgrade note.

Domino's growth is possible due to management's goal of increasing store count by 6 to 8 percent annually, the analyst said. The company's franchised business model reduces its overall exposure to food inflation and benefits margins, he said. 

Domino's has ongoing momentum in its mobile and digital ordering platform, Staszak said: digital orders represented 63 percent of total orders in 2017, which marks an increase from 60 percent in 2016. Encouragingly, digital orders have higher average order sizes, come with lower labor costs and result in more accurate orders, the analyst said. 

Argus raised its EPS estimate for fiscal 2018 to $8.30 per share, up from a prior estimate of $6.25, Staszak said. The higher estimate is based on the following, the analyst said:

• Domino's reputation for delivering positive earnings surprises.
• An accelerated pace of new store openings in the U.S.
• A modest increase in margins from more favorable commodity costs.

Price Action

Shares of Domino's Pizza were up slightly at $221.55 after the open Wednesday.

Related Links:

Benzinga's Top Upgrades, Downgrades For March 7, 2018

Bank Of America Incrementally Bullish On Domino's Pizza After Q4 Print

Photo courtesy of Domino's Pizza.