Nomura Securities Downgrades Domino's Pizza (DPZ) to Neutral
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Nomura Securities downgraded Domino's Pizza (NYSE: DPZ) from Buy to Neutral but maintains a price target of $135.00 amid slowing U.S. restaurant industry same-store sales trends during Q2, #1 market-share pizza concept Pizza Hut U.S. (owned by YUM! Brands) likely enjoying another solid quarter in Q2, the possibility of growing risks associated with driver accidents/insurance, concerns about adverse currencies, and valuation.
Analyst Mark Kalinowski commented, "We downgrade shares of Domino's (DPZ US) to Neutral (from Buy). Our downgrade is predicated upon multiple factors, including slowing U.S. restaurant industry same-store sales trends during Q2, #1 market-share pizza concept Pizza Hut U.S. (owned by YUM! Brands) likely enjoying another solid quarter in Q2, the possibility of growing risks associated with driver accidents/insurance, concerns about adverse currencies, and valuation. While we believe that both Domino's and Pizza Hut continue to have much more room to grab market share from smaller pizza chains and mom-and-pop pizza outlets than they do each other, we cannot ignore the possibility that Pizza Hut U.S. may be limiting upside to Domino's U.S. same-store sales in Q2. Of course, part of the challenge for DPZ stock and its current valuation has been the shares' robust performance year to date. DPZ shares are up 15.7% year to date, outperforming the S&P 500 by approximately 1,300bp. FY16E EPS at $3.93; FY17E EPS at $4.68."
Shares of Domino's Pizza closed at $127.33 yesterday.
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