Domino’s Pizza Inc. (Ticker Symbol: DPZ) announced this week that they will be testing out a new automated delivery service in Houston, Texas. Domino’s is joining forces with a robotics company called Nuro for a pilot program that is to be released later this year. Nuro has developed its own proprietary autonomous vehicle, called R2, that has the capability to deliver goods, including food and dry cleaning. Domino’s is still learning the operational capabilities with the R2 and is excited to learn more about the customer interactions and experiences with the vehicle. The Founders of Nuro are Dave Ferguson and Jiajun Zhu, both of whom were principal engineers at Google’s autonomous driving car project, Waymo.
This comes on the heels of a sub-par earnings and revenue release earlier in the quarter. Domino’s reported an earnings per share beat of $2.20 per share vs. Wall Street analysts’ expectations of $2.09 per share. However, Domino’s net revenue failed to meet Wall Street’s expectations, reporting a revenue of $836.0 million vs. analysts’ estimates of $849.6 million. In addition, same-store sales growth was reported at 3.9% vs. Wall Street analysts’ expectations of 4.22%. Domino’s stated that competition from third-party delivery services like UberEats and DoorDash has put pressure on same-store sales this quarter.
Above is the past two and a half years of Domino’s stock price. The stock found temporary support at its 100-day Moving Average in the second quarter of 2017 but ended up spending the whole year trading in a range between the $160.00 and the $220.00 price levels. The stock finally found some footing in the first quarter of 2018 and after a strong earnings report, the stock broke through its 14-month long trading range and began to move higher. It proceeded to rally over 50% and traded to an all-time high of $305.34 on August 29th, 2018. In the third quarter, the stock topped, forming a bearish divergence pattern, as indicated on the chart by the pink lines, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Domino’s case. The stock proceeded to sell off, pulling back nearly 25%. Domino’s stock has been trading in a range between the $240.00 and $300.00 price levels so far this year.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 11 analysts offering 12-month price targets, the average price target for Domino’s stock is $312.60. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $283.62.
Earlier this year, Domino’s released its new loyalty rewards program. Customers of Dominos loyalty program can take a picture and scan any pizza, even if it’s from Papa John’s, Pizza Hut, or made at home, and earn up to ten points as long as the software recognizes that it has sauce, cheese, and a crust. Domino’s is ahead of its competitors when it comes to technology and its digital channels help account for more than 60% of its sales domestically. Investors in the space should look to Domino’s next earnings call on July 16th for fresh news on the pizza chain.