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Domino's (DPZ) Stock Gains 22% in 3 Months: More Upside Left?

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·4 min read
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Domino's Pizza, Inc. DPZ is likely to benefit from its international expansion efforts, robust comps growth and strong digital ordering system. However, coronavirus-related woes and high debt levels are potent headwinds.

Let’s delve deeper.

Factors Driving Growth

Since Domino’s generates a chunk of its revenues from outside the United States, the company is committed toward accelerating presence in high-growth international markets to boost business. The company’s international growth continues to be strong and diversified across markets, courtesy of exceptional unit level economics.

Notably, first-quarter fiscal 2021 marked the 109th consecutive quarter of positive same-store sales in the company’s international business. Improvement in comps can be attributed to ticket growth. The company inaugurated 175 (36 net U.S. stores and 139 net new international stores) global net stores during first-quarter fiscal 2021. Many international franchisees continue generating robust returns. Countries like India, China and Japan posted robust growth during first-quarter 2021. Meanwhile, Turkey, Colombia, Germany and France delivered robust retail sales growth. In the past three months, shares of the company have gained 22.4% compared with the Zacks Retail - Restaurants industry’s 4.2% growth.

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Meanwhile, the company is investing heavily in technology-driven initiatives like digital ordering to boost sales. It has started driverless pizza delivery services in Houston, TX. To this end, the company partnered with Nuro — a robotic company for delivery services. The extended ways to order a pizza has thus kept Domino’s at the forefront of digital ordering and customer convenience. Moreover, other digital enhancements in terms of ordering, selecting service methods, paying and tipping were implemented to boost consumer experience. Also, the company’s digital loyalty program — Piece of the Pie Rewards — continues to contribute significantly to traffic.

Moreover, the company continues to innovate aggressively across all aspects of its business — including GPS, e-bikes, AI in-store technology, great food and an evolving digital experience. Apart from this, enhanced make-line and cut-table technology as well as AI-enabled forecasting are being rolled out for better matching of demand with capacity. Notably, the initiatives are likely to enhance speed, accuracy and efficiency of services in the upcoming periods.

Concerns

Managing liquidity has become a herculean task during the coronavirus pandemic. As of Mar 28, 2021, the company’s long-term debt stood at approximately $4.12 billion (almost flat sequentially). The company ended fiscal first quarter with cash and cash equivalent of $267.7 million compared with $168.8 million in the previous quarter. Although cash and cash equivalent has increased sequentially, it might still be difficult to manage high debt level.

Moreover, the pandemic has impacted the company’s business. Owing to the uncertain and dynamic nature of the crisis, the company continues to regularly monitor the pandemic to operate and survive amid such trying times.

Zacks Rank & Key Picks

Domino’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Dine Brands Global, Inc. DIN, Texas Roadhouse, Inc. TXRH and BJ's Restaurants, Inc. BJRI. Dine Brands and Texas Roadhouse sport a Zacks Rank #1, while BJ's Restaurants carries a Zacks Rank #2 (Buy).

Dine Brands’ 2021 earnings are expected to surge 269.3%.

Texas Roadhouse has a three-five year earnings per share growth rate of 10%.

BJ's Restaurants has a trailing four-quarter earnings surprise of 40.4%, on average.

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You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

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