Pizza chain operator Domino’s Pizza Enterprises Ltd [ASX:DMP] has had a turbulent past few months.
After sliding from over $55 per share in November last year, to hitting a 12-month low of $38.70 just before Christmas, the pizza retailer has had its fair share of struggles.
Despite grabbing back some of its losses on the ASX, Domino’s again disappointed investors with its mediocre half-year results.
In what could be a bit of a respite for the embattled company and downtrodden investors, the share price looks like it could be on its way back up.
This morning, Domino’s share price has improved by 67 cents or 1.59%, to trade at $42.75 — for a total improvement of 3.76% over the past 12 months.
Why the optimism?
It seems some analysts have changed their tune on Domino’s outlook. Goldman Sachs today upgraded the pizza chain operator’s stock to a buy rating from neutral.
In a note out of the investment bank, Goldman’s analysts have set a price target on $50.50 on the company’s shares and remains positive due to its strong store growth potential and improvement in key markets.
That implies an upside of over 18% over the next 12 months.
Goldman upgraded Domino’s shares on the belief that it offers a promising growth story due to new store roll outs and strong growth in Japan, Belgium, Netherlands and Luxembourg.
Domino’s also saw a boost in its overseas markets in the last half financial year, which contributed more than half of the company’s EBITDA with $71 million from Europe and Japan.
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Management in Japan said operations had exceeded expectations, with strong sales growth and profitability increases. 31 new stores were opened with an increase of 4.8% in same store sales.
Europe CEO Andrew Rennie said the European region performed well, leading the group in new store openings and revenue growth. 33 new stores were opened with 2.3% growth in same store sales.
Although Goldman said it has a few concerns over Domino’s execution in France, it expects new management and an aggregator partnership to support its growth in that market.
Furthermore, despite the slide in share price over the past 30 days, the broker said it still sees a lot of value in the company’s shares.
What’s next for Domino’s
Goldman Sachs’ upgrade might reignite some investor confidence in the pizza chain operator — and for good reason.
Despite the soft half yearly results, Domino’s has solid long-term prospects. The company plans to double its network of stores globally to 4900 (an upgrade of 250 stores since last guidance) by 2025–28.
The significant network growth will likely help support the solid performance in both Japan and Europe, building upon an expected global 3–6% same store growth annually. A figure which exceeds the industry average.
For Money Morning
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