Domino’s Pizza (DPZ) landed a price-target increase at Oppenheimer, with the investment firm expecting new menu items to be among the factors driving the chain’s shares higher in 2020.
Oppenheimer raised its 12-month to 18-month price target to $325 from $295 and kept its outperform rating. Domino’s shares on Monday rose as much as 1.4% to nearly $299 each. The stock has gained nearly 19% since the start of the year. Oppenheimer said Domino’s remains a top pick into 2020 even as its shares during the fourth quarter have risen by more than 20% compared with a 5% decline in shares of its peers.
“Valuation does not appear stretched relative to peers,” said Oppenheimer analysts Brian Bittner and Michael Tamas in a research note. “We believe this supports stock upside into ’20 as sales trends improve, earnings estimates have an upside bias and sentiment continues to elevate.”
The firm said the consensus estimate for US same-store sales at Domino’s is 2.8% in 2020. Oppenheimer expects an acceleration in those sales next year in part as the company is expected to unveil new food choices for the first time since 2017 when it started selling bread twists.
“While management has been very tight-lipped on the upcoming new food news, we believe any new menu item at this juncture could drive incremental sales, particularly behind a fresh, intelligent marketing campaign,” the firm said.
Oppenheimer also said its analysis of industry dynamics suggests Domino’s sales in 2020 should also face less intense competition from third-party delivery companies. “We believe the competitive headwind started peaking on a year-over-year basis in late 4Q18 owing to the cadence of fast-food competitors joining third-party platforms and promotional offers for free delivery to drive trial. This now represents an easier lap starting 1Q20,” it said.
Oppenheimer also said Domino’s rollout of improvements in its digital platform should help the company continue to increase its market share. Domino’s has a more than 18% share of the US market and has been able to increase that share by more than 120 basis points each year, the firm said.
The firm noted that Domino’s last month said it would sell $657 million in debt. “We believe the proceeds and existing cash could be used for capital returns to shareholders in the form of $700M+ share repurchases,” said Oppenheimer. It added that a special dividend its less likely but that such dividend could mean a payout of $16 to $17 per share.