Marketmind: No Escaping the Inflation Beast

A look at the day ahead from Dhara Ranasinghe.

Data on Thursday showed China’s factory gate prices grew at their fastest pace on record in September, a day after figures showed another solid increase in U.S. consumer prices.

The take away from markets is that transitory or not, central banks are likely to respond to higher inflation sooner rather than later.

And with minutes from last month’s Federal Reserve meeting showing policymakers’ growing concern about inflation, investors have again brought forward rate-hike expectations.

Fed Funds futures have pulled forward expectations for the first hike from late in 2022 to almost fully price a 25 basis point hike by September.

In addition, money market pricing suggests the Bank of England could move before year-end, the cautious European Central Bank could tighten next year and the overtly dovish Reserve Bank of Australia could raise rates by end-2023 — a trajectory that doesn’t gel with the central bank’s guidance.

Singapore’s central bank on Thursday unexpectedly tightened monetary policy, citing forecasts for higher inflation.

Markets, having priced in higher inflation and a tighter monetary policy outlook, appear to be in a calmer mood in early Europe. Asian shares rallied overnight, European and U.S. stock futures are higher too. U.S. Treasury yields, while a touch higher, are holding below recent multi-month highs.

Still, China property shares fell as investors fretted about a debt crisis in the sector.

The Turkish lira, at record lows versus the dollar, is also in the spotlight after Turkey’s President Tayyip Erdogan dismissed three central bank officials.

Key developments that should provide more direction to markets on Thursday:

– BOJ policymaker rules out stimulus withdrawal even after economy recovers

– Taiwan’s TSMC posts 13.8% rise in Q3 profit on global chip demand surge

– Japan dissolves parliament, setting stage for general election

– Data: Spain harmonized inflation rate(Sept), Canada manufacturing sales (Aug)

– United States: Initial Jobless Claims (Oct), Jobless Claims 4-week Average, PPI (Sept), NY Fed Treasury Purchases 22.5 to 30 years, 4-week and 8-week T-Bill Auction

– Central Banks: Fed’s Bowman, Bostic, Barkin, Bullard, Daly and Harker, ECB’s Elderson, and BoE’s Tenreyro and Mann speak

– Earnings: UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp, Walgreens Boots Alliance, Fast Retailing, Domino’s Pizza.

(Reporting by Dhara Ranasinghe; Editing by Rachel Armstrong)

 

Domino’s Pizza on Strong Footing, Q3 Earnings to Rise Nearly 25%

The world’s largest pizza restaurant by sales Domino’s is expected to report its third-quarter earnings of $3.11 per share on Thursday, which represents year-over-year growth of about 25% from $2.49 per share seen in the same period a year ago.

The company has beaten consensus earnings per share (EPS) estimates only twice in the last four quarters. The largest pizza chain in the world would post revenue growth of about 7% to around $1.03 billion.

Domino’s shares hit a record high after it reported better-than-expected earnings and revenue in the second quarter in July, largely driven by international and U.S. same-store sales growth and increases in global store counts during the trailing four quarters.

The better-than-expected number would help the stock recoup recent losses. Domino’s shares rose over 25% so far this year. The stock closed 0.17% lower at $479.48 on Monday.

Analyst Comments

“We nudge our 3Q domestic & international same-store sales above consensus, though maintain our EPS estimate due to less favourable FX than previously forecasted. We like shares’ risk/reward as 3Q21 consensus EPS appears reasonable and consensus 4Q21 domestic same-store sales estimates appear too low for a stock that has pulled back 12% since reporting strong 2Q21 results,” noted Andrew M. Charles, equity analyst at Cowen.

“Further, our industry checks suggest Domino’s (DPZ) franchisee/franchisor relations are as strong as they’ve ever been, suggesting continued strength in sales and cash flows. Should our 3Q21 domestic same-store sales estimate prove accurate, we see no reason why 4Q21 consensus domestic same-store sales estimates should embed 300 bps of deceleration, particularly with new menu innovation in the form of oven-baked dips & twists combos.”

Domino’s Stock Price Forecast

Twenty analysts who offered stock ratings for Domino’s in the last three months forecast the average price in 12 months of $546.11 with a high forecast of $625.00 and a low forecast of $475.00.

The average price target represents a 13.90% change from the last price of $479.48. From those 20 analysts, ten rated “Buy”, ten rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $564 with a high of $673 under a bull scenario and $389 under the worst-case scenario. The firm gave an “Overweight” rating on the company’s stock.

“Delivery momentum supporting best in class system sales and unit growth in a still fragmented category; advantaged category with Covid-19 disruption and beginning to lap a strong year-ago performance. Well-positioned in key US market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carry out market represents incremental growth,” noted John Glass, equity analyst at Morgan Stanley.

“Sustainable competitive advantages vs aggregators on value, the delivery speed which could become more visible in ’21-’22. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage.”

Several other analysts have also updated their stock outlook. Wells Fargo slashed the price target to $509 from $517. Deutsche Bank raised the price target to $485 from $410. Citigroup lifted the price target to $510 from $480.

Check out FX Empire’s earnings calendar

SP500 Is On The Edge – What’s Next?

It’s likely that legislation to fund President Biden’s $4 trillion worth of infrastructure and other spending plans will be moving through Congress around the same time. Those bills are expected to include tax increases for businesses and on capital gains. All of that combined could set markets up for a rocky December but for now, investors are turning attention back to economic data and upcoming earnings.

What to watch next week?

Turning to next week, Q3 earnings “unofficially” kick off Wednesday with earnings from big Wall Street banks, including Bank of America, Goldman Sacks, JP Morgan Chase, and Wells Fargo. Other earnings worth noting next week include Fastenal on Tuesday; BlackRock, Delta, and The Progressive Corp. on Wednesday; Alcoa, Citigroup, Dominos Pizza, Morgan Stanley, United Health Group, U.S. Bancorp, and Walgreens on Thursday; and J.B. Hunt, PNC Financial, and Prologis on Friday.

In economic data next week, it’s a packed calendar that will cover all the economic bases from jobs to inflation. Highlights include the Job Openings and Labor Turnover Survey on Tuesday; the Consumer Price Index on Wednesday; the Producer Price Index on Thursday; and Retail Sales, Empire State Manufacturing, Import/Export Prices; Business Inventories, and the preliminary read on October Consumer Sentiment.

Technical analysis

ES ##-## (Daily) 2021_10_10 (6_59_58 PM)

As we expected SP500 bounced back up last week. The market is reaching a critical point – MA50 retest. There is strong accumulation in this market, while the price holds under daily MA50. In these mixed conditions, its better to stay on the sidelines till the market finds a new direction.

If accumulation remains and the price starts building the base above daily MA50, the market will attempt to renew an uptrend. On the other hand, if futures lose accumulation and price gets rejected at MA50, SP500 might continue to drift to the downside. The cycles forecast bottom in October. But we need a price action confirmation.

Earnings Week Ahead: Most Big U.S. Banks, Delta Air Lines, UnitedHealth and Domino’s in Focus

Earnings Calendar For The Week Of October 11

Monday (October 11)

No major earnings are scheduled for release.

Tuesday (October 12)

Ticker Company EPS Forecast
TRYG Tryg KRW1.71
FAST Fastenal $0.42
PNFP Pinnacle Financial Partners $1.55

Wednesday (October 13)

IN THE SPOTLIGHT: BLACKROCK, DELTA AIR LINES

BLACKROCK: The world’s largest asset manager is expected to report its third-quarter earnings of $9.70 per share on Wednesday, which represents year-on-year growth of over 5% from $9.22 per share seen in the same period a year ago.

The New York-based multinational investment management corporation would post revenue growth of over 13% to around $5.0 billion. In the last four consecutive quarters, on average, the investment manager has delivered an earnings surprise of over 9%.

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive ~13% EPS CAGR (2020-23e) via ~6% avg LT organic growth,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. Recently acquired Aperio also bolsters solutions offering and organic growth. We expect the premium to widen as BLK takes share in evolving industry and executes on improving organic revenue growth trajectory.”

DELTA AIR LINES: The earnings per share (EPS) is expected to swing back to positive territory for the first time in seven quarters on Wednesday, more than doubling to $0.16 per share compared to a huge loss of -$3.30 per share seen in the same period a year ago.

The Airline company, which provides scheduled air transportation for passengers and cargo throughout the United States and across the world, is forecast to report revenue growth of over 170% in the third quarter to around $8.4 billion. It is worth noting that in the last two years, the airline has beaten consensus earnings estimates just three times.

“Airlines will report 3Q21 results later this month, beginning Oct 13 with Delta Air Lines’ release. We believe 3Q21 started strong, sagged in the middle and then finished strong as people started planning holiday trips,” noted Helane Becker, equity analyst at Cowen.

“We believe 4Q21 guidance will reflect a strong peak, likely >2019 levels while off-peak is likely to lag 2019 levels. Stocks to own include United Airlines (UAL), Alaska Air Group (ALK), Allegiant Travel (ALGT) & Southwest Airlines (LUV).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 13

Ticker Company EPS Forecast
JPM JPMorgan Chase $3.00
BLK BlackRock $9.60
INFY Infosys $0.17
WIT Wipro $0.07
FRC First Republic Bank $1.84
DAL Delta Air Lines $0.16

Thursday (October 14)

IN THE SPOTLIGHT: UNITEDHEALTH, DOMINO’S PIZZA

UNITEDHEALTH: Minnesota-based health insurer is expected to report its third-quarter earnings of $4.41 per share, which represents year-over-year growth of over 25% from $3.51 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 11%. The largest insurance company by Net Premiums would post revenue growth of about 10% to around $72.0 billion.

UnitedHealth Group is the number one Medicare Advantage player with ~28% market share, the number two Medicare PDP player with ~20% market share, and the number two commercial player with ~15% market share,” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country. With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

DOMINO’S: The world’s largest pizza company is expected to report its third-quarter earnings of $3.11 per share, which represents year-over-year growth of about 25% from $2.49 per share seen in the same quarter a year ago.

The company has beaten consensus earnings per share (EPS) estimates only twice in the last four quarters. The largest pizza chain in the world would post revenue growth of about 7% to around $1.03 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 14

Ticker Company EPS Forecast
UNH UnitedHealth $4.41
BAC Bank Of America $0.71
WFC Wells Fargo $1.00
MS Morgan Stanley $1.69
C Citigroup $1.74
USB US Bancorp $1.15
WBA Walgreens Boots Alliance $1.02
AA Alcoa $1.75
DCT DCT Industrial Trust $0.02
TSM Taiwan Semiconductor Mfg $1.04
DPZ Dominos Pizza $3.11
CMC Commercial Metals $1.19

Friday (October 15)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank is expected to report its third-quarter earnings of $10.11 per share, which represents year-over-year growth of over 4% from $9.68 per share seen in the same quarter a year ago.

It is worth noting that in the last two years, the world’s leading investment manager has surpassed market consensus expectations for profit and revenue most of the time. The world’s leading investment manager would post revenue growth of over 4% to around $11.25 billion.

“Reason to Buy: Organic growth, solid capital position and steady capital deployment activities continue to enhance Goldman’s prospects. Business diversification offers long-term earnings stability,” noted analysts at ZACKS Research.

“Reason to Sell: Geopolitical concerns and volatile client-activity levels may hinder the top-line growth of Goldman. Further, legal hassles and higher dependence on overseas revenues remain other headwinds.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 15

Ticker Company EPS Forecast
GS Goldman Sachs $10.11
PNC PNC $3.38
TFC Truist Financial Corp $1.09
HON Honeywell International $2.01
GE General Electric $0.51
PLD ProLogis $0.47
VFC VF $1.16
JBHT J B Hunt Transport Services $1.79
GNTX Gentex $0.42
MAN ManpowerGroup $1.91
SXT Sensient Technologies $0.80
ABCB Ameris Bancorp $1.17
ACKAY Arcelik ADR $0.68
BMI Badger Meter $0.50

 

UK’s Domino’s Expands Share Buyback as Profit Jumps

The UK franchise of U.S.-based Domino’s Pizza Inc reported a 27.7% jump in underlying profit before tax for the six months ended June 27, and added an additional 35 million pounds ($48.61 million) to its existing 45 million pounds share buyback programme.

($1 = 0.7200 pounds)

(Reporting by Chris Peters in Bengaluru; Editing by Ramakrishnan M.)

Domino’s Shares Hit Record High as Q2 Earnings Beat Forecasts; Target Price $673

Domino’s shares hit a fresh record high after the world’s largest pizza company reported better-than-expected earnings and revenue in the second quarter, largely driven by international and U.S. same-store sales growth and increases in global store counts during the trailing four quarters.

The largest pizza chain in the world said its earnings per share (EPS) rose to $3.12, up from $2.99 seen in the same period a year ago. That was higher than the Wall Street consensus estimates of $2.86 per share.

The company said its revenues increased $112.4 million, or 12.2%, in the second quarter of 2021. That was above the market expectations of $972.3 million.

Following upbeat results, Domino’s shares hit a new all-time high, jumping 14.55% to $538.82 on Thursday. The stock has surged over 40% so far this year.

Analyst Comments

“A top-line beat lapping Covid benefits with positive US sales assuaged lingering concerns on comp outlook with carryout coming back but delivery also holding up amid a favorable consumer backdrop and strong relative value prop. Estimates rise here with confidence in 2H; price target to $564,” noted John Glass, equity analyst at Morgan Stanley.

“Delivery momentum supporting best in class system sales and unit growth in a still fragmented category; advantaged category with Covid-19 disruption and beginning to lap strong year-ago performance. Well-positioned in key US market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carryout market represents incremental growth. Sustainable competitive advantages vs aggregators on value, delivery speed which could become more visible in ’21-’22. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage.”

Domino’s Stock Price Forecast

Twenty analysts who offered stock ratings for Domino’s in the last three months forecast the average price in 12 months of $495.16 with a high forecast of $585.00 and a low forecast of $410.00.

The average price target represents a -8.10% change from the last price of $538.82. From those 20 analysts, ten rated “Buy”, 10 rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $564 with a high of $673 under a bull scenario and $389 under the worst-case scenario. The firm gave an “Overweight” rating on the company’s stock.

Several other analysts have also updated their stock outlook. CFRA raised the target price by $75 to $550. Stephens lifted the target price to $540 from $490. Wedbush upped the target price to $585 from $520. Stifel increased the target price to $485 from $435.

“Adj. EPS $3.12 above Cons $2.88 on better-than-expected dom and int’l SSS and slight Op margin upside. Unit growth also ahead of expectations led by international. SSS momentum holding strong despite easing restrictions and tough compares, which lead us to raise our NT ests. price target to $522 (from $420) and reiterate Hold rating as stock’s current valuation of 27x 2022E EBITDA appears fair,” noted Alexander Slagle, equity analyst at Jefferies.

Check out FX Empire’s earnings calendar

Best Dividend Stocks July 2021

The hallmark way I go about finding the best dividend stocks…the outliers, is by looking for quiet Big Money trading activity. Oftentimes, that can be institutional activity. I’ll go over why following the Big Money is so important in a bit. But, the 5 stocks I see as long-term dividend growth candidates are DPZ, LRCX, MSFT, SBUX, & EXR.

Over decades, I’ve learned that the true tell on great stocks is that big money consistently finds its way into the best companies out there… especially dividend paying stocks. Some of the biggest returns ever have come from holding stocks for many years and reinvesting dividends.

I want the odds on my side when looking for the highest quality dividend stocks…and I own many of them.

So, let’s get into it.

Up first is Domino’s, Inc. (DPZ), which is a large pizza chain. They’ve been raising their dividend for years.

Let’s first start with the technical picture.

When deciding on a strong candidate for long-term dividend growth, I look for stocks leading in price:

  • 1 month performance (+8.82%)
  • Historical Big Money buy signals

Below are the Big Money signals Domino’s has made since 2015. Blue bars are showing that DPZ was seeing big buy activity according to MAPsignals. Typically, the more Big Money signals, the stronger the stock:

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, DPZ has a strong dividend history:

  • 3-year dividend growth rate (+19.2%)
  • Current dividend per share = .94
  • Forward yield = .82%
  • 3-year earnings growth rate (+28.28%)

Next up is Lam Research Corp. (LRCX), which is a leading semiconductor company. They’ve also been a dividend grower for years.

When deciding on a strong candidate for long-term dividend growth, it’s a good idea to look for many years of dividend increases.

Now let’s look at recent performance:

  • 1 month performance (-.24%)
  • Historical big money signals

Below are the big money signals that Lam Research has made since 2015. I expect more buy signals in the years to come.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Lam Research has a nice dividend history. Their earnings growth has been stellar as well:

  • 3-year dividend growth rate (+40.7%)
  • Current dividend per share = 1.30
  • Forward yield = .82%
  • 3-year earnings growth rate (+15.48%)

Next, I’m looking at Microsoft Corp. (MSFT), which is a leading software company. They have a solid dividend history.

When deciding on a strong candidate for long-term dividend growth, recent performance in the shares is important:

  • 1 month performance (+7.63%)
  • Recent Big Money signals

Below are the big money signals that Microsoft has made since 2015. It’s clear the stock has been in a nice uptrend:

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, MSFT has a strong dividend history:

  • 3-year dividend growth rate (+9.2%)
  • Current dividend per share = .56
  • Forward yield = .84%
  • 3-year earnings growth rate (+43.33%)

Next, I’m looking at Starbucks Corp. (SBUX), which is a global coffee chain. They operate over 32,000 restaurants globally.

When deciding on a strong candidate for long-term dividend growth, recent muted performance is not a bad thing:

  • 1 month performance (-1.44%)
  • Historical Big Money signals

Below are the Big Money signals that Starbucks has made since 2015.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, let’s check up on the fundamentals. As you can see, Starbucks has a strong dividend history.

  • 3-year dividend growth rate (+17.9%)
  • Current dividend per share = .45
  • Forward yield = 1.61%
  • 3-year earnings growth rate (-6.23%)

Lastly, I’m looking at Extra Space Storage, Inc. (EXR), which is a leading storage company. They’ve been a leader in the Real Estate sector for years.

When deciding on a strong candidate for long-term dividend growth, I like to look for recent leaders:

  • 1 month performance (+11.22%)
  • Historical Big Money signals

Below are the Big Money signals that EXR has made since 2015.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you gotta see if the fundamental picture supports a long-term investment. EXR has been a steady grower:

  • 3-year dividend growth rate (+4.9%)
  • Current dividend per share = 1.00
  • Forward yield = 2.40%
  • 3-year earnings growth rate (-.11%)

The Bottom Line

DPZ, LRCX, MSFT, SBUX, & EXR represent solid dividend choices. Given the strong historical dividend growth and Big Money signals, these stocks could be worth an extra look for a dividend investor.

Disclosure: the author holds long positions in personal accounts in LRCX, MSFT, SBUX, & EXR and long positions in managed accounts in DPZ, LRCX, SBUX, & EXR.

To learn more about the MAPsignals process, click here.

Disclaimer

Domino’s Stock: A Big Money Favorite

So, what’s Big Money? That’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Domino’s has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the stock trades is what points to more upside. As I’ll show you, the Big Money has been consistent in the shares for years.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all of the big money signals DPZ has made the last year.

The last few days have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price. Red signals are showing big selling in the shares:

Source: www.mapsignals.com, End of day data sourced by Tiingo.com

In 2021 it’s been a volatile one based on the chart. But DPZ recently made 4 of these rare green signals. This came after a big selloff earlier this year when growth stocks were under pressure. Generally speaking, recent green bars mean more upside is ahead.

Now, let’s check out a few technicals grabbing my attention:

  • YTD outperformance vs. market (+2.26% vs. SPY)
  • YTD outperformance vs. discretionary ETF (+8.52% vs. XLY)

Outperformance is huge for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Domino’s has been growing rapidly. Take a look:

  • 3-year sales growth rate (+14.1%)
  • 3-year earnings growth rate (+28.28%)

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, Domino’s has been a top-rated stock at my research firm, MAPsignals, multiple times the last few years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

DPZ has been a constant Big Money favorite since 2015. And since its first appearance on this report, it’s up +323%:

Source: www.mapsignals.com, End of day data sourced from Tiingo.com

Let’s tie this all together.

Domino’s continues to fire on all cylinders technically alongside growing sales. With many high-quality growth stocks beginning to breakout with Big Money, I like the long-term story of the stock.

The Bottom Line

The DPZ rally likely has further upside. Big money buying in the shares is signaling to take notice. Shares could be positioned for a bounce soon. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds long positions in DPZ in personal and managed accounts at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

Pizza Deliveries in UK Boost Domino’s Quarterly Sales

The company, a franchise of U.S.-based Domino’s Pizza Inc, said system sales in UK and Ireland were up 18.7% compared with the first quarter of last year, which was unaffected by the impact of the COVID-19 pandemic.

Through 2020, the virus outbreak sparked greater demand for takeaways and comfort food, as people spent more time at home.

However, in the United States, where coronavirus-related restrictions were eased months ago, Domino’s and rival Papa John’s have reported a slowdown in quarterly same-store sales as customers opted to dine out.

The United Kingdom has only just started easing restrictions from its latest lockdown, and Domino’s expects its investments to drive growth as the country reopens, the company’s Chief Executive Officer Dominic Paul said.

For the reported quarter, Domino’s said a 6.8% growth in its pizza delivery business offset lower sales at its lockdown-impacted outlets, which traded at 65% of 2019 levels.

The company reported system sales in UK & Ireland of 371.3 million pounds ($517 million) for the 13 weeks ended March 28, 2021.

(Reporting by Vishwadha Chander in Bengaluru; Editing by Shailesh Kuber and Shounak Dasgupta)

Domino’s Pizza Shares Plunge on Lower Profits But Analysts Optimistic on Outlook; Target Price $435

Domino’s Pizza, the largest pizza company in the world based on global retail sales, reported that its global retail sales rose 14.4% in the third quarter and same-store sales grew 17.5% in the United States as consumers ordered more pizzas during the COVID-19 pandemic, but weaker-than-expected profit pushed shares down over 10% in last two trading days of the previous week.

The largest pizza chain in the world said its revenues increased $146.9 million, or 17.9%, in the third quarter of 2020. This increase was primarily due to higher U.S. retail sales resulting from same-store sales growth and an increase in store counts during the trailing four quarters, resulting in the higher supply chain, U.S. franchise and U.S. Company-owned stores revenues.

“We expect the brand’s strong sales performance to continue, as consumers continue to gravitate toward Domino’s menu innovation, value proposition, and strong digital ordering infrastructure (still 75% of sales). We are raising our 4Q20 domestic same-store sales to 14% from 10% relative to 8% Consensus Metrix, remain above consensus in 2021 with our 2.2% vs consensus of 1.8%,” said Andrew M. Charles, equity analyst at Cowen and Company.

“We expect U.S. and Int’l comp strength to continue, while elevated supply chain & company stores costs are transitory. Mgmt is reviewing prior targets for 25,000 stores by 2025, an issue that is timing related as the goal was made pre-COVID, rather than capability, which creates some controversy. However, we believe this presents an opportunity for DPZ to deploy the $327M repurchase authorization.”

However, Domino’s diluted EPS was $2.49 for the third quarter of 2020, lowered than the market expectation of $2.79, but better than $2.05 in the prior-year quarter. That lower-than-expected profit on was largely due to surge pandemic-related costs – general and administrative costs rose 9.5% and commodity costs also rose 3.8%.

That pushed Domino’s shares down over 10% in the last two trading days of the previous week. Domino’s Pizza’s shares closed 2.5% lower to $390.95 on Friday; however, the stock is up over 30% so far this year.

Domino’s net income increased $12.8 million, or 14.8%, in the third quarter of 2020. This increase was primarily driven by higher income from operations resulting from increased U.S. franchise revenues as well as higher supply chain volumes, partially offset by higher variable performance-based compensation expense as well as COVID-related costs, including additional compensation and enhanced sick pay for frontline workers.

Domino’s Pizza stock forecast

Twenty-five analysts forecast the average price in 12 months at $435.32 with a high forecast of $500.00 and a low forecast of $380.00. The average price target represents an 11.35% increase from the last price of $390.95. From those 25, 16 analysts rated “Buy”, nine rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $446 with a high of $575 under a bull scenario and $318 under the worst-case scenario. Domino’s Pizza had its target price cut by Barclays to $390 from $345. Cfra upgraded shares from a hold rating to a buy rating and boosted their price target for the company to $450 from $400 in July.

Other equity analysts also recently updated their stock outlook. Robert W. Baird boosted their price target to $450 from $440 and gave the company an outperform rating. Longbow Research reaffirmed a buy rating and issued a $441 price. At last, Jefferies Financial Group lifted their price objective to $405 from $385 and gave the stock a hold rating.

Analyst view

“Weaker than expected flow through on a strong top-line quarter a near term setback, but costs likely transitory. Unit growth set back by closures, COVID-19, but this too is likely temporary; lowering 20/21 modestly to reflect these realties; rolling price target to ’22, and largely unchanged at $446,” said John Glass, equity analysts at Morgan Stanley.

“Delivery momentum supporting best in class system sales and unit growth in a still fragmented category; advantaged category in 2020 with Covid-19 disruption. Well-positioned in key US market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carry out market represents incremental growth. Sustainable competitive advantages vs aggregators on value, the delivery speed which could become more visible in ’20 and ’21. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage,” Glass added.

Upside and Downside Risks

Upside: 1) SSS growth returns to historical levels as DPZ wins vs competition. 2) Strong int’l sales as EMs grow in importance. 3) Fading delivery aggregator pressures. 4) Faster COVID-19 recovery, greater share gains/unit growth – highlighted by Morgan Stanley.

Downside: 1) Irrational aggregator discounting perpetuates. 2) Key markets fall into economic recessions; greater COVID-19 impact (including on cost side). 3) Domestic fortressing cannibalizes sales.

Check out FX Empire’s earnings calendar

Domino’s Pizza Price Target Raised to $422 by Morgan Stanley; Carryout Market Represents Incremental Growth

Domino’s Pizza, reported a better-than-expected second-quarter earnings result, which increased confidence in sustaining strong domestic comp momentum in the near term, including new bone-in wings products and solid new customer acquisitions, wrote Morgan Stanley’s equity analyst John Glass, who raised Domino’s Pizza’s price target to $422.

According to Morgan Stanley, there were several points of encouragement that led them to raise sales and earnings numbers post second quarter.

Those include: 1) Continued strong comp momentum that accelerated in May and showed no discernible signs of dropping off in June. COVID-19-related factors are playing an important role, but so is new customer acquisition and an uptick in digital + loyalty usage. 2) Bone-in wings as a new product for Domino’s Pizza, the largest pizza company in the world, has the potential to see strong consumer reaction to this popular menu item. 3) More new products to come. 4) G&A savings are likely outpacing Street expectations, now with two quarters <$90M. DPZ has quietly reset G&A spending over the past year, the benefits of which are now becoming more visible, Morgan Stanley noted.

The largest pizza company in the world, based on global retail sales said its worldwide sales increased 5.7% in the second quarter, or 8.1% excluding foreign currency impact. Global retail sales in the second quarter were positively impacted by U.S. same-store sales but were negatively impacted by temporary store closures in certain international markets due to the COVID-19 pandemic. U.S. sales grew 16.1% during the quarter.

The largest pizza chain in the world said its revenues increased $108.4 million, or 13.4%, in the second quarter of 2020; Net Income increased $26.3 million, or 28.5% and diluted EPS for the second quarter was $2.99, up 36.5% over the prior-year quarter.

“Clearly FY20 will be well below 19, but with market share opportunity still ahead for franchisees, and unit economics healthy, we think it’s more a question of timing, rather than if, that robust unit growth returns. Here we raise our estimates and PT for 20/21 and reiterate our OW. DPZ is clearly a beneficiary of the current environment but perhaps it will get increasing credit as a post-COVID-19 beneficiary as well,” said Morgan Stanley’s Glass.

“We are increasing 2H20 US comps such that FY20 is now 9.1% vs 7.4% prior and FY21 2.0% vs 0.3% prior; international is little changed and remains LSD in both years. FY20 all-in op margin moves to 18.0% from 17.3% and EPS to $12.35 from $11.38 prior, while FY21 increases to $12.44 from $11.83 previously. Based on these increased earnings estimates, our price target increases to $422 from $405.”

Morgan Stanley with a base case forecast of $422, predicts $493 under a bull-case scenario and $284 under the worst-case scenario. Twenty-three analysts forecast the average price in 12 months at $412.67 with a high forecast of $450.00 and a low forecast of $330.00. The average price target represents a 1.26% increase from the last price of $407.52. From those 23, 15 analysts rated ‘Buy’, eight rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

We second Morgan Stanley on Domino’s Pizza stock outlook. We also think it is good to buy at the current level and target at least $420 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

“Delivery momentum supporting best in class system sales and unit growth in a still fragmented category; advantaged category in 2020 with COVID-19 disruption. Well-positioned in key US market: Technology leadership, data-driven investment and marketing decisions are hallmarks of the brand. Carryout market represents incremental growth,” Morgan Stanley’s Glass said.

“Sustainable competitive advantages vs aggregators on value, delivery speed which could become more visible in ’20 and ’21. Strong cash flow generation, stable franchise income stream and international business are partially offset by a price competitive category & high leverage.”