Domino's Expected 4Q Revival: Morgan Stanley Highlights US Store Growth And AI Boost From Microsoft Partnership

Morgan Stanley analyst Brian Harbour reiterated an Overweight rating on the shares of Domino's Pizza Inc DPZ with an unchanged price target of $435.

The analyst said in 3Q, EPS ex-items were slightly below Morgan Stanley's estimate.

In 4Q, DPZ expects a return to positive same-store sales in the U.S., which the analyst has modeled north of 2%.

Uber Technologies, Inc. UBER Uber Eats is piloting in Las Vegas with Seattle, Detroit, Miami and Houston next to come and national expansion by year end and set to impact 2024 materially, noted the analyst.

International units were a soft spot, not just Russia and DMP closures, but also gross openings, but DPZ addressed this by noting easing closures and a step up in 4Q openings, added the analyst.

Also See: Domino's Pizza Analysts Cut Their Forecasts After Q3 Results

According to the analyst, the company has good visibility into U.S. openings with over 70 under construction and most set to open in 4Q, and also good visibility internationally, where closures should finally start to normalize and openings should be strong in 4Q.

The slight change to annual guidance versus what was stated early in the year effectively reflects softer units but a bit better comps and YTD sales growth close to 6% ex. FX and therefore a bit better global retail sales growth for the year, said the analyst.

The analyst said the Overweight rating since early 2023 was based on the idea that this improvement in narrative was possible based on several potential levers.

The recently announced partnership with Microsoft Corporation MSFT was constructive, in the analyst's view, and will bring generative AI solutions to both the customer experience and operations.

Related: Baking Tech Into Pizza: Domino's And Microsoft Cook Up An AI-Driven Future For Store Operations 

Price Action: DPZ shares are trading lower by 1.07% at $346.42 on the last check Friday.