Domino’s Pizza Inc (NYSE: DPZ) near its year-to-date low on Friday is ready for a meaningful recovery over the next twelve months, says Andrew Strelzik. He’s a Senior Analyst at BMO Capital Markets.
Domino’s stock has upside to $430 a share
He recommends that you invest in this stock on the weakness as it has upside to $430 a share – about a 35% upside from here.
Other than attractive valuation, Strelzik is bullish on signs of easing labour market conditions. His research note reads:
Our confidence is increasing in DPZ’s ability to ease delivery driver staffing challenges. Data is beginning to show potentially broadening labour pool availability to support Domino’s staffing recovery if the economy continues to slow.
In its latest reported quarter, the Michigan-based company had better-than-expected revenue but earnings fell short of Street estimates on driver shortage and higher costs.
Domino’s stock has a dividend yield of 1.33%.
Much of the bad news is already priced in
Recent consumer surveys also point to continued strength in spending on Pizza, suggesting the concerns of “Pizza fatigue” are overblown.
Strelzik is convinced the major concerns are already priced into the Domino’s stock that’s down about 40% versus the start of 2022.
Domino’s shares currently trading at 17x 2023E EBITDA, below typical 17.5x trough multiple over the last five years are compelling and offer an attractive risk/reward against the backdrop of lowered expectations.
Premium brand that leads in “digital” and most importantly, a strong cash flow, were among other reasons why he upgraded the Domino’s stock to “outperform” on Friday.
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