'Attractive entry point': Broker upgrades Domino's (ASX:DMP) shares

Get a slice of this…

| More on:
asx pizza share price represented by hand taking slice of pizza

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Domino's shares have been sold off this week
  • The team at Morgans believe it could be a buying opportunity for investors
  • The broker believes this is an "attractive entry point" and has upgraded its shares

The Domino's Pizza Enterprises Ltd (ASX: DMP) share price has fallen heavily this week.

Since the start of the period, the pizza chain operator's shares have lost over 20% of their value.

Why is the Domino's share price sinking this week?

The main driver of the Domino's share price weakness has been the release of a half year result that fell short of expectations.

In case you missed it, Domino's reported an 11.1% increase in network sales but a 5.3% decline in underlying net profit after tax to $91.3 million. This earnings miss was driven largely by its underperformance in Asia.

Is this a buying opportunity?

The team at Morgans believe the weakness in the Domino's share price is a buying opportunity for investors.

According to a note, the broker has upgraded the company's shares to an add rating, albeit with a reduced price target of $115.00.

Based on the current Domino's share price, this implies potential upside of 43% for investors over the next 12 months.

What did the broker say?

While the broker was disappointed with Domino's performance during the first half, it remains positive on the future.

Morgans is forecasting "an 18.0% 5-year cumulative average growth rate of EPS between FY20 and FY25F." This is expected to be underpinned by a combination of steady same store sales growth, its ongoing store rollout, and the inclusion of the new market of Taiwan.

The broker also highlights that Domino's has the balance sheet capacity to make acquisitions that could bolster its growth.

Overall, its analysts believe the risk/reward on offer now is attractive, particularly for a company of its quality.

Morgans concluded: "DMP has de-rated substantially from a high of $165 in September last year to close at $86 today [$80.52 now]. Even after the de-rating, it remains a premium multiple stock, but in our opinion the growth potential of the business warrants this status. ROIC is set to accelerate in the years ahead. We think investors should take their opportunity to build a position in this high quality business at the current attractive entry point. We upgrade to ADD."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Share Market News

5 things to watch on the ASX 200 on Monday

Here's what to expect on the local market on Monday.

Read more »

Three healthcare workers look and point at at medical image
Share Market News

Pro Medicus shares surge 10% to crack $300 as healthcare leads ASX 200 sectors

Pro Medicus shares just keep on going, rising 625% over the past three years.

Read more »

Magnifying glass in front of an open newspaper with paper houses.
Share Market News

How did ASX REITs vs. residential property investment perform in FY25?

We review the share price growth of the largest ASX REITs vs. residential property investment in FY25.

Read more »

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Broker Notes

These ASX 200 shares could rise 55% to 65%

Analysts think these shares are dirt cheap at current levels.

Read more »

Young man with a laptop in hand watching stocks and trends on a digital chart.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Broker Notes

Why DroneShield, Nickel Industries, and CSL shares could be best buys

Let's see why Bell Potter is so bullish on these shares.

Read more »

A group of executives sit in front of computer screens in a darkened room while a colleague stands giving a presentation with a share price graphic lit up on the wall
Opinions

2 ASX 200 large-cap shares that this fundie is cashing in after phenomenal growth

Shaw and Partners portfolio manager James Gerrish says he knows this will be an 'unpopular call'.

Read more »

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's what Westpac says the RBA will do with interest rates next week

Are interest rates heading lower again? Let's find out what the banking giant is predicting.

Read more »