The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has been a solid performer in early trade.
At the time of writing the pizza chain operator’s shares are up 3% to $43.65.
Why is the Domino’s share price on the rise?
With no news out of the company, the catalyst for today’s gain appears to be a broker note out of Citi this morning.
According to the note, the broker has taken its sell rating off the company’s shares and upgraded them to a neutral rating following a significant pull back in its share price over the last couple of months.
The broker has, however, reduced the price target on Domino’s shares from $45.20 to $43.40.
Why is Citi more positive on Domino’s now?
As well as seeing a bit of value in its shares because of the pull back, the broker is positive on Domino’s due to its opportunity in the European market.
It expects significant growth in its European earnings in the future, underpinning at least mid-teen earnings per share growth for each of the next three years.
However, it has warned investors that it expects Domino’s first half result to be towards the low end of its guidance range.
As such, if this were to cause a pull back in its share price to below $39.00, the broker would consider upgrading its shares to a buy rating if everything else remains as it is today.
Should you invest?
I would agree with Citi that Domino’s is a hold at the moment and would suggest investors wait for its results before making a decision.
Especially given the recent report by the AFR revealing that a leading franchisee is “suing Domino’s in the Federal Court, alleging misleading and deceptive conduct, unconscionable behaviour, misuse of market power and breaching the franchise code of conduct by failing to act in good faith.”
Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended Collins Foods Limited and 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.