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Domino's Pizza (DPZ) Q3 Earnings: Is a Beat in the Cards?

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The pizza giant, Domino’s Pizza, Inc. (DPZ - Free Report) is slated to release third-quarter 2016 results on Oct 18, before the opening bell. We expect the company to surpass expectations.

Last quarter, Domino’s posted robust results wherein both the top and bottom lines beat the Zacks Consensus Estimate, with the company reporting a positive earnings surprise of 5.38%. In fact, Domino’s revenues have surpassed the Zacks Consensus Estimate in six of the last seven quarters.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Domino’s is likely to beat on earnings once again because it has the perfect combination of the two key ingredients.

Zacks ESP: Earnings ESP for Domino’s stands at +1.11% because the Most Accurate estimate is 91 cents while the Zacks Consensus Estimate is pegged at 90 cents. This is a meaningful indicator of a likely positive earnings surprise.  

Zacks Rank: Domino’s currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Domino’s Zacks Rank #3 and +1.11% ESP makes us reasonably confident of an earnings beat.

DOMINOS PIZZA Price and EPS Surprise

What is Driving the Better-than-Expected Earnings?

We note that the pizza category is a fast growing segment in the U.S. quick-service restaurant industry and Domino’s ranks as the second-largest pizza chain in the world. Hence, its solid brand positioning is expected to drive sales.

Moreover, the second quarter of 2016 marked the 21st consecutive quarter of positive same-store-sales domestically and the 90th quarter of positive comps growth in the international segment. We expect the company’s digital ordering system, focus on re-imaging and other sales initiatives to help sustain the momentum in the third quarter as well.

However, negative currency translation might dent the quarter’s profits given Domino’s large international presence. Furthermore, higher cost requirement is likely to hurt margins while a soft consumer spending environment in the U.S. restaurant space may pull down the to-be-reported quarter’s sales.

Other Stocks to Consider

Domino’s is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they also have the right combination of elements to post an earnings beat this quarter:

The Cheesecake Factory Incorporated (CAKE - Free Report) has an Earnings ESP of +1.64% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fogo de Chao, Inc. has an Earnings ESP of +13.33% and a Zacks Rank #3.

The Wendy’s Company (WEN - Free Report) has an Earnings ESP of +10% and a Zacks Rank #3.

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