Cowen Downgrades Domino's After 'Robust' Stock Gains

Domino's Pizza, Inc. DPZ investors benefited from a "robust" reaction after a strong fourth quarter earnings beat but the move now skews the risk to reward profile unfavorably, according to Cowen.

The Domino's Pizza Analyst

Andrew Charles downgraded Domino's Pizza from Outperform to Market Perform with a price target lifted from $325 to $380.

The Domino's Pizza Thesis

Domino's fourth quarter report is highlighted by three factors that reaffirm the pizza chain's status as a best-in-class, Charles wrote in a note. These include U.S. same-store sales driven by positive ticket and traffic and management's commentary that third-party delivery competition eased in the quarter.

However, Charles says the stock's 25% move to the upside represents an overreaction as two-year comps were actually flat from the prior quarter. Also, delivery sales improved sequentially but this could be partly attributed to easier compares.

Nevertheless, the long-term story remains encouraging as the pizza chain is well-positioned to show 4% net restaurant growth domestically and around 7% internationally. In addition, a two to three year 2% to 5% same-store sales growth looks to be "sustainably achievable" from continued innovation, new menu items, and carry-out which was described as a "profit engine over time."

The research firm's revised price target is consistent with 2018 levels when the pizza chain was showing domestic same-store sales growth 6% to 7% above its long-term range.

DPZ Price Action

Shares of Domino's Pizza were trading lower by 2.95% Monday at $360.68.

Related Links:

The Street Reacts To Domino's Q4 Earnings, 25% Stock Rise

Domino's Is Doing Just Fine Amid Bruising Delivery War

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