Domino’s Is Well Worth Watching Ahead of Q4 Earnings, Soaring Food Costs a Headwind

The world’s largest pizza restaurants chain, Domino’s, is expected to report its fourth-quarter earnings of $4.30 per share, which represents year-over-year growth of about 12% from $3.85 per share seen in the same period a year ago.

The international pizza giant would post revenue growth of 2% to around $1.38 billion from $1.36 billion a year earlier. The Ann Arbor Michigan-based company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

This is modest growth compared to solid sales in the last two years when the COVID-19 pandemic sparked high delivery demand. But this year, the bigger question is whether Domino’s will be able to manage high input and labour costs.

Earlier this year, the pizza giant predicted an 8% to 10% rise in its food basket costs, three to four times the inflation for a typical year, CEO Ritch Allison said, reported CNBC.

“Reasons To Buy: Domino’s solid digital ordering system, robust international expansion and other sales initiatives should continue to drive growth,” noted analysts at ZACKS Research. “Reasons To Sell: The coronavirus pandemic, high debt and a tricky consumer-spending environment in the U.S. restaurant space remain potent headwinds.”

Domino’s Pizza stock closed 3.02% higher at $429.98. The stock fell over 23% so far this year after surging more than 47% in 2021.

Analyst Comments

“Valuation in line with pre-Covid appears appropriate based on our view of normalizing US SSS in ’22-23 consistent with Domino’s (DPZ) long-term outlook. Delivery momentum supporting best in class system sales and unit growth in a still fragmented category and strong franchisee unit economics remain supportive longer-term,” noted John Glass, equity analyst at Morgan Stanley.

“Well-positioned in key U.S. market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carry out market represents incremental growth. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage.”

Domino’s Stock Price Forecast

Fourteen analysts who offered stock ratings for Domino’s in the last three months forecast the average price in 12 months of $530.86 with a high forecast of $642.00 and a low forecast of $470.00.

The average price target represents a 23.46% change from the last price of $429.98. Of those 14 analysts, seven rated “Buy”, five rated “Hold”, while two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $535 with a high of $695 under a bull scenario and $386 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the pizza restaurant’s stock.

Several analysts have also updated their stock outlook. Wedbush cut the price objective to $475 from $550. Cowen and company lowered the target price to $480 from $550. Guggenheim slashed the price target to $480 from $510.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator gives a strong selling opportunity.

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