Written by Vlad Shepkov
BMO Capital Markets analyst upgraded Domino’s Pizza (NYSE:) from “market performance” to “outperform” and maintained a $430 target price on the stock, citing strong consumer survey readings, improving labor market conditions and an attractive valuation of the stock.
In his latest notes on the company, the analyst lists several key trends that the pizza giant is expected to benefit from:
– A recent proprietary survey of consumers showed that respondents “expect a net increase in spending on the pizza category over the next six months, with the strongest net increase expected in the Dubai Agriculture District.”
– The same survey notes that “pizza fatigue seems unlikely because respondents have ordered an average of ~1 pizza per month for the past six months.”
– Improving labor market conditions, which may help mitigate one of Domino’s major issues: “Data is beginning to show the potential for expanding workgroup availability that can help move DPZ delivery driver recruitment challenges in the right direction.”
The analyst further highlights the stock’s recent underperformance, and believes that all “major concerns in stocks have already been ignored”.
He finds the current valuation – “DPZ stocks are currently 1) near multi-year lows; 2) trading at 17x 2023E EBITDA, below the usual 17.5x trough multiple over the past five years; and 3) trading near 10-year lows Compared to the S&P 50” – as convincing and presenting “attractive risk/return… against the backdrop of low expectations.”
BMO Capital Markets emphasizes that “DPZ is an attractive growth vehicle driven by strong sales growth opportunities, premium branding, digital leadership and attractive cash flow.”
Domino’s shares closed at $320.14 yesterday, showing a gain of nearly 35% from current levels.