Domino's share price drops 5% on bearish broker note

This pizza chain operator's shares are having a good day…

| More on:
A man looks sadly away from his computer screen as he holds a slice of pizza in his hand with an open pizza box in front of him on his desk.

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

The Domino's Pizza Enterprises Ltd (ASX: DMP) share price is not delivering the goods on Monday.

In afternoon trade, the pizza chain operator's shares are down 5% to $71.95.

Why is the Domino's share price falling?

Investors have been selling down the Domino's share price on Monday after the company was the subject of a bearish broker note out of Goldman Sachs.

According to the note, the broker has downgraded the pizza chain operator's shares to a sell rating and cut the price target on them by 34% to $59.20.

This implies potential downside of almost 18% based on the current Domino's share price.

What did the broker say?

The broker made the move on the belief that the company will fall short of consensus earnings estimates. Goldman explained:

We believe that consensus remains too high, and we see further downside, specifically from lower earnings in Japan and Europe due to lower store growth and not being able to fully pass through cost-inflation.

We believe this high inflationary environment will impact DMP in two ways. Firstly, it will push out the franchisee payback period, especially for split stores, where its store economics, were already fragile. […] Secondly, for EBITDA margin, we expect that Japan will see the highest erosion, back to pre-COVID levels given sales/store dilution due to normalization of orders post COVID and high cost inflation that may not be fully passed on.

In light of this, Goldman is forecasting Domino's to deliver earnings growth well short of consensus estimates.

We now forecast a DMP sales CAGR and NPAT CAGR from FY22-24e to be 9.5% and 5.4% respectively and our EPS forecasts are 10%/19%/27% below FactSet consensus for FY22-24e inclusive due to both our lower sales and margins expectations.

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 Scott Phillips.

More on Broker Notes

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Broker Notes

Analysts say these ASX shares are top buys in June

Brokers are urging investors to buy these shares. Let's find out why.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman and man calculating a dividend yield.
REITs

What price target does Macquarie have on Goodman Group shares?

Goodman Group posted an interesting set of numbers in Q3. Here's Macquarie's take.

Read more »

Miner looking at a tablet.
Broker Notes

Why Macquarie expects this ASX 200 copper stock to surge 36% in a year

Macquarie forecasts some hefty gains ahead for the ASX 200 copper miner. But why?

Read more »

two women celebrating good news on phone
Broker Notes

Top broker names 3 ASX All Ords stocks with between 30% and 77% upside

These 3 stocks offer compelling potential upside.

Read more »

Woman on her phone with diagrams of tech sector related elements linking with each other.
Broker Notes

A leading fund manager is buying these ASX 200 tech shares

Let's see why the fund manager has these shares in its focus portfolio.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Broker Notes

Broker says these ASX 200 shares can rise 40% to 80%

Bell Potter sees scope for these shares to rocket from current levels.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Broker Notes

How this undervalued ASX All Ords share could rocket 80% in a year

A leading fund manager expects a big turnaround for this beaten-down ASX All Ords stock.

Read more »