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Domino's Pizza Inc DPZ

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We Raise Domino’s FVE on Lower Cost of Equity; Shares Still Look Rich

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

We’re raising our per share fair value estimate on wide-moat Domino’s Pizza to $386 from $350, attributable to a lower cost of equity assumption (to 7.5%), partly offset by the incorporation of our 26% U.S. statutory tax rate forecast. Our cost of equity rating is consistent with other heavily franchised operators in our coverage. Domino’s benefits from a steady stream of royalty-based payments that link to system sales, while reduced exposure to volatile input costs diminishes margin uncertainty (largely labor and food inflation). In our view, quick-service restaurants are recession resistant, as value-oriented operators tend to outperform premium concepts during periods of economic uncertainty. However, Domino’s shares still appear overvalued at current levels, which exceed our fair value estimate by approximately 18%.

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Company Profile

Business Description

Domino’s Pizza Inc. is a restaurant operator and franchisor, with a footprint of more than 17,800 stores across 90 countries. The firm generates revenue through the sales of pizza, wings, salads, and sandwiches at company-owned stores, through royalty and marketing contributions from franchise-operated stores, and through its network of 26 dough manufacturing and supply chain facilities which centralize purchasing, preparation, and last-mile delivery for more than 6,800 units in the U.S. and Canada. With roughly $16 billion in 2020 system sales, Domino’s is the largest player in the global pizza market, ahead of Pizza Hut, Papa John’s, and Little Caesars.

30 Frank Lloyd Wright Drive
Ann Arbor, MI, 48105
T +1 734 930-3030
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Mar 31, 2021
Fiscal Year End Jan 2, 2022
Stock Type Cyclical
Employees 14,400


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