On Tuesday, Wells Fargo (NYSE:WFC) made an adjustment to the financial outlook for Domino's Pizza (NYSE:DPZ), increasing the price target to $475 from the previous $460, while keeping an Equal Weight rating on the stock. The adjustment comes ahead of the company's first-quarter earnings report, which is scheduled to be released before the market opens on Monday, April 29, 2024.
The revised price target by Wells Fargo is based on a forward-looking price-to-earnings (P/E) ratio of 26.5 times for the fiscal year 2025. This valuation is 1.5 times lower than the five-year next twelve months (NTM) P/E average of 28 times. The firm's earnings per share (EPS) estimate for Domino's stands at $3.15, which falls short of the consensus estimate of $3.41. The difference is attributed to an anticipated $19 million impact from Domino's Pizza's DPC dash ownership.
In terms of profitability, Wells Fargo's analysis forecasts an improvement in supply chain margin by 185 basis points year-over-year to 10.8%, while restaurant margins are expected to increase by 205 basis points year-over-year, helped by lower food costs. General and administrative expenses are projected to rise slightly by 25 basis points year-over-year due to increased technology investments.
Overall, the predicted changes in margins are expected to result in an earnings before interest and taxes (EBIT) margin improvement of 103 basis points year-over-year, reaching 18.4%. This financial outlook by Wells Fargo reflects the firm's assessment of Domino's Pizza's operational performance and market position as the company prepares to disclose its first-quarter financial results.
InvestingPro Insights
As Domino's Pizza (NYSE:DPZ) gears up for its first-quarter earnings report, investors might find the following data and tips from InvestingPro useful for a comprehensive analysis. With a market capitalization of $16.44 billion, Domino's is trading at a P/E ratio of 31.9, which is slightly above the forward-looking P/E ratio of 26.5 times for the fiscal year 2025 set by Wells Fargo. This higher valuation is reinforced by the adjusted P/E ratio for the last twelve months as of Q4 2023, which stands at 32.53.
Domino's has demonstrated a commitment to returning value to shareholders, having raised its dividend for 10 consecutive years and maintained dividend payments for 13 consecutive years. This is indicative of the company's stable financial health and management's confidence in its future profitability, which is further supported by analysts predicting that the company will be profitable this year, as well as having been profitable over the last twelve months.
For those considering an investment in Domino's or looking to adjust their portfolio, there are additional InvestingPro Tips available. These include insights on the company's valuation multiples such as EBITDA and revenue, as well as its liquidity position. With a total of 11 additional tips available on InvestingPro, investors can delve deeper into the company's financials and market performance. To access these tips and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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