Domino’s Reports Earnings Miss

The pizza chain giant Domino’s Pizza, Inc. (Ticker Symbol: DPZ) reported earnings and revenue that fell short of analysts’ estimates.  The Ann Arbor, Michigan-based company reported an earnings miss of $2.05 per share vs. Wall Street analysts’ expectations of $2.07.  Additionally, Domino’s reported a revenue miss of $820.8 million vs. Wall Street analysts’ expectations of $823.9 million.  The company also reported that same-store sales growth grew by 2.4%, which was less than Wall Street analysts’ were looking for at 2.8%. Domino’s reported that this was the slowest quarter for same-store sales since 2012.

The pizza giant also updated its guidance and outlook for the next two to three years and has reduced its expected sales growth to now be between 7% and 10%, which has decreased from the previous range of 8% to 12%. The company also lowered its forecast for both its international and domestic same-store sales growth.  Domino’s is now looking for its international same-store sales growth to be in a range of 1% to 4%, which is down from 3% to 6%.  The company is looking for domestic same-store sales to be in a range between 2% and 5%, which is down from 3% to 6%.

The above image is a chart of Domino’s stock going back nearly the past three years. Domino’s started off 2017 on a positive note finding dynamic price support twice in the first and second quarters at its 100-day moving average.  Over the next six months, the stock ​found additional price support around the $166.00 price level while putting in a double bottom reversal pattern over the next two quarters.

Some traders use what’s called a “measured move” to try and project where the stock might go in the future based on breakouts from technical formations. In Domino’s case, one would take the bottom price from the double bottom pattern (roughly $166) and the price of the neckline from the pattern (roughly $220) then subtract them to get the difference ($54). The difference is then projected from the neckline in the direction of the breakout to project the price of the measured move (Neckline – Difference = Measured Move). In Domino’s case, the projected price target from the double bottom pattern was $274.00, which the stock achieved roughly three months after breaking out.

The stock continued to trade higher and punched in an all-time high of $305.34 on August 29th, 2018. The stock has spent the majority of 2019 staying positive but dipped to negative territory in the third quarter.  Currently, the stock is positive for the year but below both its 100- and 200-day moving averages.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 23 analysts offering 12-month price targets, the average price target for Domino’s stock is $285.05. 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 $252.25.

Domino’s announced on its conference call with analysts that the company’s board has approved a $1 billion dollar share buyback program.  Buybacks give confidence to the shareholders because the company’s management is making a statement that the stock is undervalued relative to the current price or fundamentals and that a bright future could be ahead.

Investors in the pizza space should look to competitor Papa John’s (Ticker Symbol: PZZA) earnings release on November 4th for fresh news within the sector.

 


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