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Why Domino’s Pizza Enterprises Ltd (ASX:DMP) shares are on the rise today

Domino's Pizza share price

One of the best performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today has been the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price.

The shares of the highly divisive pizza chain operator have pushed 3.5% higher to $49.55 in late morning trade.

Why are Domino’s Pizza Enterprises’ shares on the rise?

This morning Domino’s was the subject of a positive broker note out of Morgan Stanley.

Which will no doubt be a big relief to shareholders after the pizza chain giant’s shares were downgraded to a sell rating by two leading brokers earlier this month.

According to today’s note, Morgan Stanley has maintained its overweight (buy) rating and increased its price target from $55.00 up to $65.00. This price target implies potential upside of over 31% even after today’s gain.

Why is Morgan Stanley bullish on Domino’s?

The broker has made the move on the back of its belief that Domino’s European expansion will provide it with significant long-term growth.

Furthermore, recent concerns about pizza consumption is lowering has been dismissed by the broker after it analysed the market.

It also found that Domino’s is a step ahead of its competitors due to its scale and online/mobile ordering service.

Its analysts have predicted that the company will achieve earnings per share of $1.58 in FY 2018 and $2.02 in FY 2019. This prices Domino’s shares at under 25x estimated FY 2019 earnings.

Should you invest?

I agree with Morgan Stanley that Domino’s is a buy. I think its plan to double its store network and widen its margins over the next seven years will provide it with significant growth that propels its share price higher.

However, with earnings season just a couple of weeks away and some tipping Domino’s to fall short of its guidance, it may be prudent to wait for its results before investing or just buy half the shares you want to own today and the other half after its results release.

After all, a miss would almost certainly drive its share price lower and create a more attractive investment opportunity.

As well as Domino’s, I think industry peers Collins Foods Ltd (ASX: CKF) and Freedom Foods Group Ltd (ASX: FNP) could be worth a closer look.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited and Freedom Foods Group 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.

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