Analyst Insights

Deutsche Bank Boosts Domino's Pizza Price Target Amid Strong Earnings Outlook

Deutsche Bank raises Domino's price target to $580, driven by strategic promotions and Uber Eats partnership, with 2Q24 EPS estimate increased to $3.78

By Harrison Wall

7/11, 10:39 EDT
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KEY FIGURES

Stock Rating: Buy
Revised Price Target: $580.00
Stock Price (July 9, 2024): $477.83

Summary Points

  • Domino's Pizza expected to exceed 2Q24 earnings expectations, with Deutsche Bank raising EPS estimate to $3.78 from $3.53.

  • DPZ's strategic promotions and Uber Eats partnership drive strong US sales, with 2Q US SSS growth projected at 5%.

  • International sales forecast to reaccelerate in 2H24, with global unit growth on track for 5.4% increase in 2024.

Positive Sentiment Ahead of 2Q24 Earnings

Domino's Pizza (DPZ) is set to report its 2Q24 earnings on July 18, and Deutsche Bank's latest research report suggests a positive outlook for the company. The report highlights that DPZ is one of the few restaurant companies likely to exceed expectations this quarter, driven by sustained momentum and a strong value proposition. Despite recent tempered expectations, the company's positive traffic and market share gains are expected to stand out. The report also anticipates continued momentum in the US market, a reacceleration of international same-store sales (SSS) in the second half of the year, and accelerated unit growth.

Revised Price Targets and Stock Ratings

Deutsche Bank has updated its price target and stock rating for DPZ, reflecting the company's strong performance and future growth potential. The report raises the 2Q24 EPS estimate to $3.78 from $3.53, significantly above the consensus of $3.61. For the full year 2024, the EPS estimate has been increased to $16.16 from $15.92, compared to the consensus of $15.91. The upward revision is attributed to gains from DPZ's investment in DPC Dash, as well as improvements in other income, supply chain efficiencies, and general and administrative (G&A) expenses. The report maintains a positive outlook on DPZ, emphasizing the company's ability to sustain momentum and achieve growth targets.

Strong US Sales and Strategic Promotions

The driving factors behind the positive outlook for DPZ include robust US same-store sales (SSS) and strategic promotional activities. Deutsche Bank models a 2Q US SSS growth of 5%, in line with sell-side expectations but potentially higher according to buy-side estimates. The company's various promotions, such as the $3 You Tip, We Tip promotion and the $6.99 Large Carryout Pizza deal, have contributed to maintaining momentum. Additionally, the partnership with Uber Eats, which included a promotion for a free medium 2-topping pizza with a minimum purchase, has further boosted sales. "We believe DPZ maintained momentum in the quarter, noting the brand offered multiple value deals and saw higher contributions from Uber Eats," the report states.

International Sales and Unit Growth

Internationally, DPZ's SSS is expected to remain soft in the first half of the year due to headwinds in the Middle East but is projected to reaccelerate in the second half. Deutsche Bank models a 2Q International SSS growth of 1%, consistent with 1Q's 0.9%, with an improvement to 3% in 3Q and 4% in 4Q. The report also highlights DPZ's unit growth, modeling 226 net units for 3.8% growth in 2Q and 1,107 global net units for 5.4% growth in 2024. While there are some risks to international unit growth due to macroeconomic challenges, the company remains on track to meet its growth targets.

Valuation Recap and Outlook

Deutsche Bank's valuation of DPZ reflects the company's strong performance and growth potential. The report models a 2Q operating margin of 18.2%, slightly below the consensus of 18.4%, due to higher G&A expenses. For 2024, the operating margin is projected to be 18.6%, in line with consensus estimates. The report notes that more favorable inflation conditions could support upside in operating margins. Despite some risks to international unit growth, the overall outlook for DPZ remains positive, with expectations for continued momentum in the US market and a reacceleration of international sales in the second half of the year.

"We remain positive on DPZ into 2Q and 2H, with expectations for continued US momentum, International SSS to reaccelerate in 2H and unit growth to accelerate," says the Deutsche Bank Analyst.