Domino''s Pizza Inc (DPZ) research, news, and more from GeoInvesting

Company description

Wed, 30 Jul 2008 04:00:00 GMT

Dominos Pizza is the recognized world leader in pizza delivery. Through its primarily franchised system, Domino's operates franchised and Company-owned stores in the United States and in more than 50 countries.

Research

Mon, 17 Oct 2016 04:00:00 GMT

** Update on Our Domino’s Short

As we pointed out earlier this week, Geo co-founder Dan David was recently on CNBC's Closing Bell with Kelly Evans and Bill Griffeth to talk briefly about his short position in $DPZ. We first wrote about our DPZ short thesis in May of 2016. DPZ has moved against us since then, rising from about $130 per share to over $150 per share. With the company set to report earnings on Tuesday of this coming week, we still believe that the original risks we pointed out remain, including a higher valuation compared to peers, low FCF yield, looming debt maturities and variable future costs of commodities.

However, as we stated, it’s probably going to take time for DPZ to play out. Shorting stocks based on valuation vs. fraud/misrepresentation poses timing challenges moving into quarterly reports until the thesis potentially plays out. On that subject, we noticed that several firms have upgraded DPZ heading into its third quarter earnings release tomorrow.

Domino’s was upgraded by Joseph Buckley at Bank of America Merrill Lynch on Friday. They upgraded the stock to a “Buy” from an “Underperform” – a two notch upgrade that has us questioning whether or not they have very transparent visibility into what is to come this week. BAML analyst Buckley has a relatively favorable track record at TipRanks, with a 61% success rate and a +5.6% average return. However, Buckley had a sell rating on DPZ from early 2014 at $70.14 and most recently in August of 2016 at $148 – all the while the stock doubled.

Domino’s was also reiterated as a “Buy” at Beaufort Securities on Thursday of last week and Maxim Reiterated their “Hold” and $158 price target on the company about two weeks ago.

Acknowledging short term price risks, we have hedged our short position through the purchase of DPZ call options. We believe this to be a prudent strategy heading into Tuesday's earnings report. We remain eager to see if DPZ management will address any of the concerns we pointed out in our original report. Specifically, we are looking to see if the company will comment on labor costs, a risk factor that they just first mentioned with any prominence earlier this year.

Research

Thu, 21 Jul 2016 17:27:49 GMT

DPZ ($136, marked up to $142) - Domino’s reported results this morning that beat expectations on both lines, as well as with same store sales. The company bought back more than $220M in stock at the company’s current valuation of around 30X this year’s estimates. Free cash flow was down almost 50% year over year and the company’s interest expense rose $6.2 million to $25.2 million for the quarter and rose $12.2 million to $51.4 million for the 6 month period. We continue to believe debt and quality of earnings are two negatives that will still play out for DPZ moving into the back half of 2016 and beyond.

Earlier this year we wrote that we believed Domino’s could have the potential to be a lucrative short.

We will be on the conference call at 10AM and will update our members with more information as we go through the numbers.

Research

Wed, 22 Jun 2016 15:16:37 GMT

Nomura Downgrades Domino’s

DPZ ($127.33) - According to StreetInsider,

“Nomura lowered their rating on DPZ from Buy to Neutral but maintained a price target of $135.00 amid slowing U.S. restaurant industry same-store sales trends during Q2, #1 market-share pizza concept Pizza Hut U.S. (owned by YUM! Brands) likely enjoying another solid quarter in Q2, the possibility of growing risks associated with driver accidents/insurance, concerns about adverse currencies, and valuation.”

You can read Nomura’s full note here.

We prepared our short thesis in late April for submission to the Sohn Conference calling for downside into the high double digits. Our thesis was chosen as a finalist for the 2016 Sohn Conference Idea Contest. We based our thesis on the company’s growing debt load, irresponsible allocation of capital for buybacks at high multiples, labor cost changes, and the dynamic eating habits of millennials.

You can read our full DPZ short thesis here.