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Why this top broker rates Domino’s Pizza Enterprises Ltd shares as a buy

The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price may have sunk into the red with the rest of the market today, but one leading broker is tipping it to climb notably higher over the next 12 months.

According to a note out of Morgan Stanley, the broker has retained its overweight rating and $60 price target on the pizza chain operator’s shares following the release of a positive trading update from Domino’s UK.

The broker appears pleased with Domino’s UK’s quarterly group sales growth of 18% and like-for-like sales growth of 6.1% in the UK market despite concerns that aggregators were slowing its performance.

Analysts at the investment bank believe this result shows that it was structural pressures and not aggregators that were impacting its performance.

As a result, the broker remains confident that Domino’s can thrive despite the rise of aggregator services such as UberEATS and Menulog.

Should you invest?

I agree with Morgan Stanley on this one. I think that Domino’s is a quality business and has a strong enough brand to overcome the threat of aggregator services.

Furthermore, I believe its long-term growth potential makes it one of the better buy and hold investment options on the local share market today.

As I mentioned earlier today, management is targeting 4,650 stores by 2025, more than double its store count at the end of FY 2017. It is also aiming to leverage technology and innovation to vastly widen its margins over the next few years.

Overall, I expect this to lead to above-average earnings growth over the long-term, more than justifying the premium its shares trade at today.

However, with its half-year earnings just around the corner, it may be prudent to hold off an investment until this has been released.

Until then, industry peers like Collins Foods Ltd (ASX: CKF) and Oliver’s Real Food Ltd (ASX: OLI) might be worth a closer look.

Alternatively, these exciting tech shares could be the next market darlings if you ask me.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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