Domino's 2010 Rebound Continues

Domino's Pizza, Inc. DPZ reported robust 2Q16 results, with the top and bottom line beating expectations.

Barclays’ Jeffrey A. Bernstein maintains an Equal-Weight rating on the company, while raising the price target from $121 to $132.

Diverse Comp Drivers

Bernstein mentioned that the 2Q results were “this a sharp reversal from the EPS shortfall experienced in 1Q16, which had investors questioning whether the outsized results achieved in 2015 were sustainable.”

The analyst also stated that the company’s comp drivers continue to be diverse, with the new U.S. loyalty program having now become a meaningful contributor.

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International momentum also remains strong, and the analyst believes this comp growth could drive further unit growth, which has been tracking above the long-term guidance.

“Beyond fundamentals, the ~100 percent franchised model supports elevated leverage and ultimately a return of cash to holders,” Bernstein noted.

2016 Expectations

Although Domino's has provided limited top- and bottom-line guidance for the year, the comp momentum shows no signs of easing.

Bernstein expects the company to see double digit compares in the United States through 2016 and pointed out that market share gains have continued from both independents and the largest national peers.

For the international segment, the analyst expects 6–7 percent comp, with 7–8 percent worldwide unit growth, both estimates being at the high end of the long-term guidance.

“SG&A spend is also prudently on the rise, led by infrastructure investments & performance comp, while limiting the ’16 EPS upside,” the analyst added.

The analyst concluded, "DPZ benefited from a significant US comp rebound in 2010, and such momentum continued in recent years, with US comps solid, International industry-leading, and a 97 percent franchised model to mitigate cost pressures. However, at close to 3-year highs, we believe performance is priced in."

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