Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Domino’s Stock Looks Appetizing After Post-Earnings Dip

By MarketBeat.com (Nick Vasco )Stock MarketsOct 25, 2020 02:25AM ET
www.investing.com/analysis/dominos-nyse-dpz-looks-appetizing-after-postearnings-dip-200542251
Domino’s Stock Looks Appetizing After Post-Earnings Dip
By MarketBeat.com (Nick Vasco )   |  Oct 25, 2020 02:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Domino’s Pizza Inc (NYSE:DPZ) became a victim of its own success. After a Q2 earnings smasher, expectations were sky-high.

DPZ shares rallied heading into the Q3 earnings release, and then… Domino’s missed.

Yes, that gap down came right after earnings.

DPZ Daily Chart
DPZ Daily Chart

Revenue Beat Overshadowed by Earnings Miss and Cautious Global Growth Outlook

Q3 revenue came in better than expected at $967.7 million, beating estimates of $953 million. Comps rose by 17.5% in the US and 6.2% internationally. This marked the 38th straight quarter of US comp growth and 107th consecutive quarter of higher international comps. But with such a long track record of comp growth and pandemic-related tailwinds, the revenue growth was almost certainly baked into the share price.

What came as a shock was the earnings miss; adjusted earnings of $2.49 per share were well below estimates of $2.79. Labor, supply, and food costs were all elevated, and were all attributed to COVID-19.

Domino’s also struck a cautious tone on its global growth prospects. The pizza powerhouse, which currently has 17,000+ global locations, said it may not be able to achieve its previously stated goal of 25,000 stores by 2025. CFO Stu Levy said, “We believe the pandemic has had a net negative impact on store openings globally in part due to government restrictions as well as general permitting and construction delays.”

This is Temporary

The good news is that none of this changes the long-term thesis on Domino’s.

Earnings are still solid, and post-pandemic, there is every reason to believe that margins will go back up.

As for the global expansion, Domino’s made it clear on the Q3 call that “this is a timing as opposed to a capacity matter.”

The important thing is that Domino’s growth drivers remain in place.

It’s easy to look at Domino’s Q3 release and the subsequent reactions, and miss the forest for the trees.

But Domino’s online operations and menu updates have been growth drivers, and Q3 showed that they will continue to be.

Domino’s is a Digital Leader

Digital capability has been the biggest difference between the haves and the have-nots of 2020. Domino’s is certainly in the haves category, as prior the pandemic, Domino’s had spent years cultivating its digital presence. Now, 75% of US sales are digital.

Domino’s hasn’t had much difficulty satisfying customers’ desires for a contactless experience, and its “carside delivery has been overwhelmingly embraced by our franchisees and is available today in over 95% of our US stores.”

Most restaurants have gotten whacked in 2020, but companies like Domino’s and Chipotle (NYSE:CMG) have bucked the trend by increasingly turning to digital.

Domino’s is Updating Its Menu

Domino’s understands that competition is fierce in the restaurant's industry, and stays ahead of competitors by constantly updating its menu.

Over the summer, Domino’s launched chicken wings with improved sauces, cheeseburger pizza, and chicken taco pizza. On the Q3 call, CEO Ritch Allison noted, “Customer feedback thus far has been very positive on these new products.”

Pizza is what Domino’s is most famous for, but sandwiches, pasta, and desserts are also responsible for a good piece of the revenue pie.

The Valuation is Reasonable

Domino’s shares are trading at a forward P/E of 31.6, which is on the high side, but reasonable when you consider the company’s growth prospects.

The company is projected to see mid-single-digit sales growth for at least the next few years, and quite possibly well into the 2020s.

The current dividend, at less than 1%, is nothing to get excited about. But Domino’s has been aggressively increasing its dividend over the past seven years and its payout ratio remains very low. Of course, Domino’s should use its retained earnings to fund business growth at this stage, first and foremost. But the company seems to be balancing these objectives quite well.

The Final Word

I’ve spent a lot of time spelling out the thesis for a long-term play on Domino’s, but here’s a reason to get in sooner than later:

As coronavirus cases increase in many parts of the country, and winter approaches, consumers are going to be even more hesitant to eat out. Domino’s competitive advantages in digital will become even more pronounced in that climate.

With both Q4 and the company’s long-term future looking bright, Domino’s post-earnings dip is a great opportunity to get into a long-term winner.

Original Post

Domino’s Stock Looks Appetizing After Post-Earnings Dip
 

Related Articles

Domino’s Stock Looks Appetizing After Post-Earnings Dip

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email