Was Domino's Q2 Fresh Or Stale? Analysts Debate

Domino's Pizza, Inc. DPZ fell more than 7% Tuesday after reporting second-quarter results, highlighted by a miss on U.S. same-store sales.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

Morgan Stanley's John Glass maintains an Overweight rating on Domino's with a price target lowered from $305 to $287.

Argus' John Staszak maintains at Buy, price target lowered from $310 to $280.

Wells Fargo's Jon Tower maintains at Market Perform, unchanged $267 price target.

Shares of Domino's Pizza traded around $251.22 Wednesday afternoon.

Morgan Stanley: Bears Win This Time

Domino's report showed the bears emerged victorious as 3% U.S. comps decelerated 240 basis points on a two-year basis and fell shy of the 3.5%-4% range most analysts were expecting, Glass wrote in a note. Comps came in at 2.4% outside of the U.S., which implies a 40 basis point sequential decline on a two-year basis although were "not as bad as feared."

It should be noted Domino's sold 59 New York locations to franchisees during the second quarter and the financial impact was modeled differently throughout the Street, the analyst wrote.

Despite a few poor takeaways, the long-term bull case remains unchanged. Glass highlighted the company's superior economic delivery model compared to third-party aggregators and new store openings remain on track to hit the higher end of management's long-term targets.

Related Link: Morgan Stanley Passes On Chipotle For Domino's

Argus: Buy The Dip

Domino's stock moved lower Tuesday and investors should be buyers on the dip, Staszak wrote. Specifically, the stock "inadequately" values management's focus on technology, operational efficiency, and attractive menu prices.

The company's plan to increase its store count by 6% to 8% annually should succeed in delivering revenue growth. Also, the franchised business model lowers its financial exposure to increasing input costs and benefits its margins.

Wells Fargo: Headwinds Exist But Not 'Backbreaking'

Domino's quarter and outlook makes it clear the company faces headwinds, although Tower said they're not "backbreaking." Growing competition from third-party delivery platforms is unlikely to stop Domino's from gaining share within the pizza category, but could prevent U.S. same-store sales growth from exceeding 3% to 6%.

Exiting Tuesday's print, consensus estimates for 2019 and 2020 are likely to trend lower, which Tower said makes it difficult to imagine upside in the stock over the next year. Until then the company needs to achieve its system-wide sales target of 8% to 12% for the stock to warrant a premium valuation versus its quick service peers.