Longbow Cites Valuation In Domino's Downgrade

Shares of Domino's Pizza, Inc. DPZ bottomed near $220 in late August but has since recovered to nearly $300 and one analyst is calling for a pause.

The Analyst

Longbow Research analyst Alton Stump downgraded Domino's from Buy to Neutral with no price target (prior price target of $294).

The Thesis

Domino's stock bottomed in late August after investors showed new signs of concerns related to competition from third-party delivery platforms, Stump wrote in the downgrade note. However, the research firm's first-hand checks with franchisees should ease concern.

According to Longbow's latest rounds of checks with U.S. franchisees (published in a note on 11/13), same-store sales for the first half of the current quarter likely trended higher by 3.0% to 3.5%, the analyst wrote. If this level of growth can be sustained through the end of the fourth quarter, it would "certainly be viewed positively" by the investment community.

In fact, if Domino's maintains its momentum, the company could put an end to a three quarter long streak of comps not decelerating sequentially on a two-year stock, the analyst wrote. However, this positive development is "already baked" into the stock's valuation after recovering more than 30% from August.

Price Action

Shares of Domino's Pizza were trading lower by 2.5% at $284.50.

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