Domino's Pizza, Inc. (DPZ - Free Report) is riding high on solid brand positioning, international expansion and various sales building initiatives. With a decent share price appreciation, Domino’s is currently a profitable investment choice.
Shares of Domino's have outperformed the industry in the past six months. The stock has gained 14% against the industry’s decline of 1.8%. Moreover, an upward revision in earnings estimates for 2020 reflects analysts’ optimism in the company’s growth potential. Over the past 60 days, the Zacks Consensus Estimate for its 2020 earnings has moved up by 0.5% to $10.55 per share. Let’s delve deeper.
Robust Same-Store Sales & Unit Expansion Bode Well
The pizza category is a fast-growing segment in the U.S. quick-service restaurant industry and Domino's is one of the largest pizza chains worldwide. In the United States, the company is the market leader in the delivery segment and ranks second in the carry-out division. Notably, the third quarter of 2019 marked the 34th consecutive quarter of positive same-store sales, domestically.
Since Domino’s earns a chunk of its revenues from outside the United States, it remains 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, the third quarter of 2019 marked the 103rd consecutive quarter of positive same-store sales in its international business. Globally, Domino’s opened 829 and 1058 net stores in 2017 and 2018, respectively. Also, in the first nine months of 2019, the company opened 574 net new stores.
Furthermore, many international franchisees are steadily generating robust returns. Apart from the established markets such as Canada, Japan, Italy, the U.K., Ireland, Switzerland and South Korea, the emerging markets like Brazil, China, Indonesia and Turkey have been posting solid growth. Australia, Russia, New Zealand and Saudi Arabia are also gaining momentum.
Domino’s continues boosting sales through regular limited time offers (LTO). Moreover, the company is investing heavily in technology-driven initiatives like digital ordering to boost sales. By the end of the fourth quarter of 2019, the company will launch GPS tracking technology. Meanwhile, it has started driverless pizza delivery services in Houston, TX.
Focus on Franchising Favors Earnings
Domino’s has a wide franchise network, both domestically and internationally. Reducing the company’s ownership of restaurants and focusing more on re-franchising minimizes its capital requirements and facilitates earnings per share growth and ROE expansion.
In addition, free cash flow continues to grow, allowing reinvestment for increasing brand recognition and shareholder return. In fact, the company has increased dividend by 25%, 24%, 23%, 21% and 20% in 2014, 2015, 2016, 2017 and 2018, respectively, after initiating regular dividends in 2013.
Moreover, Domino’s is less susceptible to food inflation courtesy of franchising compared with other pizza companies with global operations. The company’s recapitalization deal also makes cash available for potential special dividend and share repurchases, subject to the board’s approval. During third-quarter 2019, it announced a new $1 billion share repurchase program.
Zacks Rank & Key Picks
Domino’s currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the same space include Chuy's Holdings, Inc. (CHUY - Free Report) , Denny's Corporation (DENN - Free Report) and Ruth's Hospitality Group, Inc. (RUTH - Free Report) , each sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chuy’s, Denny’s and Ruth's have impressive long-term earnings growth rate of 17.5%, 9% and 13.5%, respectively.
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