Domino's Pizza Stockanalysis and Valuation

INTRODUCTION

Domino's Pizza is a pizza manufacturer that operates a network of company-owned and franchised stores in the United States and international markets.

In the days of Corona, it was anything but easy for some restaurants to survive. Many had to change their business model to food delivery or takeaway, which was not easy for them. Domino's, on the other hand, did not have any problems with this change, as they had already relied a lot on the above-mentioned methods before the pandemic.

In the following, we will analyze whether Domino's can profit from the virus and whether it is at a good price right now!

BUSINESS

DPZ's 2020 revenue was composed as follows:

Sales per Business



Sales per Region


Source: https://www.marketscreener.com/

GROWTH

The Growth metrics are looking AWESOME:

5Y. Average Revenue Growth (YoY): 13%

5Y. Average EBITDA Growth (YoY): 12%

5Y. Average EBIT Growth (YoY): 12%

5Y. Average Diluted EPS Growth (YoY): 30%

Here are the past growth values and the future forecasts in one diagram:

Source: https://www.marketscreener.com/ and https://seekingalpha.com/

DIVIDEND

Current Yield (March 13.): 1,0%

Payout Ratio: 29%

5Y. Average Growth Rate: 20%

Dividend Growth for 8 Years

Average Dividend Yield last 10Y: 0,9%

DEBT

For me to verify that the company isn’t taking too much debt, I like to see that the debt is smaller than 4 times EBIT. For Domino's this means:


DEBT < 4 x EBIT = 4,19 Mrd. USD < 0,73. USD

And here, unfortunately, we have the problem with Domino's, due to the rather capital-intensive business model (franchising) and due to the aggressive growth and expansion, the company is highly indebted.

VALUATION (Current price: 367 USD)

The average Dividend Yield for the last 10 Years was around 0,9%. Given that, the fair price for DPZ, only looking at the dividend would be around 392 USD. Which means there is a margin of safety of around 7% right now.

On the Earnings side, we got an average PE of 26,4 the last 10 years. Right now, the stock is trading for a PE of around 29, which means, the stock is ~8% overvalued.

Are we now looking at the Earnings Estimates for the end of 2024 and also factor in the average PE of about 26,4 we get a Target Stock Price of around 529 USD. Which would mean as much as a total return of approx. 10,9% p.a. (considering dividends).

CONCLUSION

10,9% p.a. is a pretty juicy return. However, with so much debt, I'd like to see more potential upside for me to invest. That's why I currently rate it as a HOLD. If we see another sharp drop in price here, I will probably take action and buy me some Pizza! At around 325 USD I would start to build a position.


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