Are Domino’s Pizza shares finally cheap enough to buy?

Domino’s Pizza Enterprises (ASX: DMP) is one of those blue-chip stocks that confounds many Aussie investors. It was a market darling in the wake of the pandemic as we stayed at home, tightening our belts (financially speaking!), and ordering up big on their value-focussed fast-food offering.

But then the worst impacts of the pandemic ended, we started going out to restaurants again, and cooking at home. Worse for DMP, it was hit hard by massive increases in its input costs as inflation soared – forcing it to raise costs on everything from its cheapest pizzas to delivery charges.

The DMP share price has reflected just how tough it has been for the company over the last few years, falling from a peak over $167 in September 2021, and have been on a steady decline since, dipping below $30 this month – a decline of over 80%.

Many DMP investors are nursing big losses, and others are interested to know when DMP shares might finally be cheap enough to buy. With the company reporting FY24 results yesterday, it’s a good time to reconsider this question.

We’ve collated the key information from all the major broker research notes on DMP that dropped today. Do they think Domino’s Pizza is finally cheap enough to buy? Let’s find out!

FY24 key numbers & takeaways

• Revenue: +4.6% to $2.38 billion vs consensus $2.50 billion

• Same store sales (SSS) growth: -0.2% to +1.5% vs consensus +1.9%

• Earnings before interest, tax, depreciation and amortisation (EBITDA): +4.5% to $362.7 million vs consensus $362.4 million

• Underlying net profit after tax (NPAT): -1.9% to $120.4 million vs consensus $119.3 million

• Full year dividend: -3.7% to $1.059 unfranked (H2 dividend $0.504)

• Key Takeaways:

  • FY24 results were largely consistent with consensus forecasts, but FY25 guidance generally disappointed

  • This is the ninth time DMP has missed consensus forecasts since 2021

  • SSS is expected to stabilise partly due to easier comparatives, but also due to increase marketing spend

  • Store growth targets will be challenging given challenges to franchise profitability, steps are being taken to address this, but outcomes remain uncertain

  • Brokers are generally still bearish as markets in France and Japan remain challenging, scepticism over management’s ability to hit guidance, but they are arguably less bearish than they were prior to the results

Individual broker views

JP Morgan Upgrade to NEUTRAL from UNDERWEIGHT | Target price: raised to $34 from $33.50

• Expects SSS growth to improve in FY25 on a stronger second half performance, following a weaker first half

• Improvement in the company’s balance sheet reduces the risk of a capital-raising

Ord Minnett Downgrade to HOLD from BUY | Target price: cut to $31 from $42

• Broker notes one positive (improved gearing / balance sheet position) but several negatives including soft start to FY25, doubts over improvement in SSS, poor execution by management

• Broker cuts earnings forecasts for next three years by 5-6% and considers DMP’s valuation is still unattractive despite the share price fall

Barrenjoey Downgrade to NEUTRAL from OVERWEIGHT | Target price: cut to $31 from $42

• Title of Broker’s research note is: “Broken and in need of a fix”

• Broker doubts company’s FY25 SSS growth target as views management’s outlook statement as “soft”

• Broker believes outlook remains challenging citing limited progress in addressing franchise profitability, store economics “are so weak we wonder whether it’s too little too late”

Domino’s Pizza broker consensus: Buy, Hold, or Sell?

Domino's Pizza (DMP) Broker Consensus vs FY24 Results

The above table shows all ratings and targets for DMP from broker research notes since May 1 (to keep it current). To obtain DMP’s Broker Consensus Rating, we assigned a value of +1 to any rating better than HOLD/NEUTRAL/MARKETWEIGHT, a value of 0 for any rating equivalent to HOLD/NEUTRAL/MARKETWEIGHT, and a value of -1 to any rating worse than HOLD/NEUTRAL/MARKETWEIGHT.

We then take the average of all assigned rating values and assign a Broker Consensus Rating of BUY to average rating values greater than +0.5, a rating of HOLD for average rating values between -0.5 and +0.5, and a rating of SELL for average rating values less than -0.5.

Using this model, DMP’s average rating value is -0.45, down from +0.55 prior to its FY24 results, resulting in a Broker Consensus Rating DOWNGRADE to HOLD from BUY.

DMP’s consensus (average) target price is $38.36, down 7.8% from $41.62 prior to its FY24 results. This suggests brokers believe the stock has around 16.5% upside based upon the closing price on 21 August of $32.93.

It’s worth noting that the consensus price target may fall further over the next few days as the three brokers we have on file who have not yet updated their analysis on DMP release post-results research notes. Each of these brokers has a price target in excess of $43.78, and if the cuts at other brokers are anything to go by, we could see that $38.36 consensus target price converge further with DMP’s current price.