Domino's Pizza (DPZ): Demand Weakness Concerns are 'Overblown', UBS Upgrades to Buy

October 4, 2022 8:55 AM EDT
Get Alerts DPZ Hot Sheet
Price: $388.99 +0.07%

Rating Summary:
    19 Buy, 21 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 10 | Down: 28 | New: 30
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UBS analyst Dennis Geiger upgraded shares of Domino’s Pizza (NYSE: DPZ) to Buy from Neutral as he sees the attractive risk/reward.

Demand weakness concerns are “overblown,” Geiger argues in the upgrade note. The analyst sees catalysts that could accelerate US sales trends while also citing compelling long-term growth profile as factors that prompted him to upgrade DPZ shares to Buy. Moreover, UBS’ survey results showed solid demand for pizza and Domino's

“We see near-term catalysts to accelerate DPZ sales from: expected upcoming price increases on select promos, efforts to improve driver staffing shortages, and potential 3P delivery partnerships. Additionally, we believe DPZ should exhibit above avg resiliency in a pressured spending environment given leading value positioning and a very affordable dinner option for families,” Geiger said in a client note.

Aside from the U.S. market, Geiger lauds “best-in-class” global unit growth.

“We believe solid cash-on cash returns, fortressing success, and a store footprint w/ manageable competition & relatively low cannibalization (just 70 bps impact & trending lower) remain supportive of US unit growth accelerating to ~3-4%. Int'l whitespace, franchisee strength & brand positioning drive our est. ~7-8% growth outside the US, for ~6% global development.”

The analyst also slashed the price target to $385 from $430 per share to reflect lowered 2022/2023 estimates that reflect macro challenges and FX headwinds. Still, the new price target implies over 20% upside potential in DPZ shares.

DPZ shares are up over 3% in pre-open Tuesday.

By Senad Karaahmetovic

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