On Friday, JPMorgan (NYSE:JPM) adjusted its outlook on Domino's Pizza (NYSE:DPZ) by reducing the stock's price target to $450 from $470, while maintaining a Neutral rating. The adjustment follows a period of notable volatility for the pizza company's shares, which saw a low of $289.85 on May 31, 2023, and a high of $533.64 on June 18, 2024.
The analyst pointed out that despite the challenging operating and sales environment that characterized much of 2022 into 2023, investors have shifted focus to the robust franchise economics that supports an expanding store count and a competitive consumer price-pointed value proposition.
Domino's began to see an improvement in comparable store sales (comps) starting in the third quarter of 2023, attributed to operational enhancements and a better situation with delivery driver staffing.
These positive developments in the latter half of 2023 preceded the introduction of a new loyalty program in the fourth quarter and the unexpected integration of Domino's with the UberEats platform for order acceptance, which began in the first quarter of 2024. These strategic moves have been part of the company's efforts to bolster its service and delivery capabilities.
The analyst's commentary reflects on the company's recovery from its low point in late May 2023 and its subsequent peak in mid-June 2024, underscoring the volatility experienced by the stock. Despite the price target reduction, the analyst's neutral stance indicates a recognition of the company's solid franchise foundation and recent positive sales trends.
In other recent news, Domino's Pizza 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 toward profitability is wise, it is expected to result in a near-term negative impact on earnings projections. Following these developments, Morgan Stanley (NYSE:MS) and Macquarie adjusted their earnings estimates downwards.
Evercore ISI adjusted its outlook on Domino's Pizza shares, lowering the price target to $500 from the previous $560, citing a projected dip in near-term same-store sales (SSS) and a deceleration in global net unit growth. Meanwhile, 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
In light of JPMorgan's adjusted outlook on Domino's Pizza, current InvestingPro data provides additional context to the company's financial health and market performance. With a market capitalization of $14.25 billion and a P/E ratio standing at 26.38, Domino's appears to be maintaining a solid valuation amidst market fluctuations. The company's revenue for the last twelve months as of Q1 2024 is reported at $4539.61 million, with a slight quarterly revenue growth of 5.88%.
From an investor's perspective, two InvestingPro Tips highlight Domino's commitment to shareholder returns: the company has not only raised its dividend for 10 consecutive years but has also maintained dividend payments for 13 consecutive years. This consistency in returning value to shareholders is a critical aspect, especially when considering the company's dividend yield of 1.48% and a dividend growth of 24.79% over the last twelve months as of Q1 2024. Additionally, with analysts revising their earnings upwards for the upcoming period, there is an optimistic outlook on the company's profitability.
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