Leading broker upgrades Domino’s (ASX:DMP) share price to conviction buy rating

The Domino’s Pizza Enterprises Ltd (ASX:DMP) share price could be heading higher from here according to one leading broker…
The post Leading broker upgrades Domino’s (ASX:DMP) share price to conviction buy rating appeared first on Motley Fool Australia. –

Domino's Pizza share price

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price was among the worst performers on the S&P/ASX 200 Index (ASX: XJO) in November.

The pizza chain operator’s shares tumbled a disappointing 12.6% over the month.

Is this a buying opportunity?

One leading broker that thinks the recent weakness in the Domino’s share price is a buying opportunity is Goldman Sachs.

This morning the broker upgraded Domino’s to a buy rating and put it on its conviction list. Goldman has an $88.00 price target on the company’s shares, which represents potential upside of 19% over the next 12 months.

Why did Goldman Sachs upgrade Domino’s?

Goldman Sachs made the move in response to management’s commentary at the company’s virtual investor day event.

It commented: “DMP remains positive on the trajectory of the Japanese and German businesses in line with prior commentary and remained confident that they were seeing fewer roadblocks against their growth plans across all regions. This is in line with our thinking around DMP’s potential to maintain double digit EBITDA CAGR in the medium term despite various levels of COVID impacts in each of their markets.”

The broker is also confident that the company will deliver solid operating leverage this year thanks to the investments it made previously.

“We expect operating leverage to be a feature of the FY21 result as investments in prior year, significant performance in the high company owned store region of Japan and strong current sales environment (SSS and store opens) all contribute to the result,” it added.

Another reason the broker is bullish is its valuation, which it notes is actually very attractive in comparison to global peers.

It concluded: “We make limited earnings changes +0.7%/+1.3% over FY21/FY22, but roll-over our EV/EBITDA valuation to be based on CY21 forecasts overall resulting in a revised valuation of A$88, offering a total potential return of +19.7%. DMP compares favorably vs. international restaurant peers for the growth offered. We upgrade DMP to a Buy rating and also add it to our ANZ CL.”

Based on Goldman Sachs’ estimates, Domino’s is changing hands for 34x FY 2021 earnings and 28x FY 2022 earnings.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Leading broker upgrades Domino’s (ASX:DMP) share price to conviction buy rating appeared first on Motley Fool Australia.

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