Citi has given Dominoes a huge serve today:
Initiating coverage with Sell — We initiate coverage on Domino’s Pizza with a Sell rating and $45.50 target price. We expect the PE multiple to de-rate to 23x as sales and earnings growth slows. Domino’s has taken its share of the profit pool as far it can realistically go. Franchisees will need to see an equal share in earnings growth from here. In addition, the prospect of further acquisitions is low and store growth will likely result in some loss of sales productivity.
Reasons to think margins are near a peak — Domino’s EBITDA margin in Australia is likely to peak at 39% in our view, below the company’s target of 45%. The differential reflects the need to 1) give franchisees a stronger incentive to open stores, 2) consolidate franchisees, and 3) invest to retain digital customers.
