On Monday, UBS initiated coverage on Domino's Pizza (NYSE:DPZ) Group (DOM:LN) (OTC: DPUKY) stock with a Buy rating and a price target of GBP3.80. The firm highlighted the company's potential for a sustainable return to growth, citing an improving consumer outlook and effective execution on key business drivers such as value, digital acceleration, and franchise profitability.
According to UBS, evidence from their proprietary data indicates that Domino's is outperforming other pizza brands in terms of consumer perception and app usage metrics, which could signal accelerating growth for the company. The analyst noted Domino's significant scale benefits, which provide strong advantages in branding, value, and footprint.
The coverage anticipates a return to positive like-for-like (LFL) sales growth of -1%/3.5% in FY24e/FY25e, with system sales projected to reach £2.1 billion by FY28e, surpassing the company's £2.0 billion target. Additionally, a store count of over 1,600 is expected, supported by attractive franchisee payback terms.
Despite a 20% year-to-date decline in the stock price following weaker first-half results and the impact of passing lower prices to franchisees, UBS believes the current valuation of 13x 2025e P/E—compared to the historical average of 20x—does not fully reflect Domino's growth potential and competitive edge.
The firm anticipates that Domino's shares will re-rate as the company continues to grow delivery order volume in Q3'24e and meets consensus expectations in the second half of 2024. The initiation of the Buy rating with a 380p price target reflects UBS's confidence in Domino's Pizza Group (LON:DOM)'s prospects for growth and market revaluation.
In other recent news, Redburn-Atlantic adjusted its position on Domino's Pizza Group, upgrading the stock from Sell to Neutral. This change, following a significant decline in the company's share price year-to-date, is based on the belief that the stock may have reached its lowest point. The firm's analysis suggests that the market has already accounted for potential downgrades in the current stock price.
Furthermore, Domino's Pizza's valuation multiple has reportedly moved closer to historical lows, which influenced the decision to adjust the stock's rating. The firm's assessment implies a decrease in the risk of further declines in the share price, making the current valuation more appealing to investors who are neutral on the stock's prospects.
While the shares are trading just above the set price target of 283 pence, Redburn-Atlantic's comments highlight a possible limitation in the potential downside. These recent developments indicate a level of stability in the stock's valuation, leading to the upgraded rating.
InvestingPro Insights
As Domino's Pizza Group (OTC: DPUKY) navigates the competitive landscape, real-time data from InvestingPro highlights several key financial metrics. With a market capitalization of $1.52 billion and a P/E ratio of 15.02, the company appears to be trading at a reasonable valuation relative to its earnings. Notably, the company's gross profit margin stands strong at 47.48%, reflecting its ability to maintain profitability amidst operational costs.
InvestingPro Tips for Domino's Pizza Group underscore the company's strategic financial moves and market expectations. The aggressive share buyback program demonstrates management's confidence in the company's value. Moreover, the company's commitment to dividend payments for over 25 consecutive years signals a strong and consistent return to shareholders, aligning with UBS's positive outlook on the company's sustainable growth. However, it is important to note that analysts anticipate a drop in net income this year, which could be a factor for investors to consider.
For those seeking deeper insights, InvestingPro offers additional tips on Domino's Pizza Group, which can be accessed at https://www.investing.com/pro/DPUKY. These tips may provide further guidance on the company's financial health and future prospects.
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