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When Should You Take A Slice Of Domino's Pizza Stock?

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When Should You Take A Slice Of Domino's Pizza Stock?
Related DPZ
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Domino's CEO: Investments In The Future Of Pizza Delivery Are Paying Off

While viewing Domino's Pizza, Inc. (NYSE: DPZ) as still hot, Credit Suisse feels competition could eventually take a bite out of the company. Therefore, the firm indicated now might not be the right time to invest in the company's shares.

As such, the firm initiated coverage of Domino's stock at Neutral, and with a $200 price target. Analyst Jason West said the company continues to be one of the best growth stories in all of consumer, with investors well-rewarded for staying with the stock through thick and thin for the past nine years.

However, West noted that the competitive environment for restaurant delivery is undergoing dramatic changes. The firm sees competition from three key players, namely 1) McDonald's Corporation (NYSE: MCD), 2) delivery aggregators such as Uber, GrubHub Inc (NYSE: GRUB) and Amazon.com, Inc. (NASDAQ: AMZN) and 3) Yum! Brands, Inc. (NYSE: YUM)-owned Pizza Hut.

See Also: Breaking Down Domino's Strategy: Simple Product, Elaborate Experience

Credit Suisse sees a manageable 100-200 basis point-aggregate same-store sales risk from these competitors in the coming quarters. That said, the firm feels the company has limited room for error at the current valuation.

Credit Suisse sees outperformance of same-store sales, a weaker dollar and tax reform as posing upside risk to its thesis. However, the firm categorized the rising competition, sharp spike in rates, margin pressure in co-operated stores and a potential slowdown in international unit growth as downside risks.

Given the competitive concerns, West said it would prefer a better entry point on the stock or more evidence of how these changes will impact Domino's results before getting more positive, particularly as the valuation is still elevated.

The firm sees the third quarter results due Oct. 12 and the investor day scheduled for Jan. 2018 as upcoming catalysts.

Latest Ratings for DPZ

DateFirmActionFromTo
Oct 2017BarclaysMaintainsEqual-Weight
Oct 2017Credit SuisseMaintainsNeutral
Oct 2017Credit SuisseInitiates Coverage OnNeutral

View More Analyst Ratings for DPZ
View the Latest Analyst Ratings

Posted-In: Chaikin Analytics Credit SuisseAnalyst Color Price Target Initiation Restaurants Analyst Ratings General Best of Benzinga

 

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