Domino’s Pizza stock has shot up 30% in 2020, as pizza is the obvious frontrunner delivery choice of the pandy. Yet, Evercore ISI asserts that the company can keep growing even when the virus is no longer a restraint. Analyst David Palmer slapped Domino’s [$DPZ] with an Outperform rating and a $460 price target, noting that “the market is underestimating Domino’s market share gains and growth in 2022 and beyond.”
Domino’s has been a major beneficiary of the pandy, given its focus in suburban locations, digital capabilities, and its established delivery network—and people’s partiality to just order a pizza for yet another night in. Needless to say, skeptics ponder what will happen in the second half of 2021, when a mass vaccination campaign will give us hunkered down consumers more dine-in options.
Palmer asserts that this “natural pushback” about the risk of negative same-store sales ahead is understandable but overblown. He believes that there’s significant upside to current consensus estimates, and a reasonable valuation appears to already factor in a post-virus discount. Uber v.s. Lyft During Covid
He forecasts 15% U.S. same-store sales growth in Q4. Looking farther ahead, he mentioned that membership in the company’s loyalty program hinted at low-single-digit sales growth in 2021, and that Domino’s will post at least 4% comparable sales growth in 2022.
Palmer said Domino’s is reaping rewards from a cycle of increasing domination in the suburbs and decreasing competition. The company’s average profit per restaurant is about 50% higher than the average restaurant in markets dominated by third-party delivery players. What’s more, Domino’s is around 20% cheaper in terms of feeding a family of four than fast-food delivery, and some 60% cheaper than getting a meal delivered from a dining chain.
He notes in a fanciful scenario, where Domino’s gains even more market share than expected, the stock could soon climb to $520. Domino’s stock was up 0.8%, at $385.62, in recent trading. Who Really Owns DoorDash?