In morning trade the Domino's Pizza Enterprises Ltd (ASX: DMP) share price has defied the market decline and pushed higher.
At the time of writing the pizza chain operator's shares are up almost 3% to $43.88.
Why is the Domino's share price on the rise?
Investors have been buying the company's shares this morning after it was the subject of a positive broker note out of Goldman Sachs.
According to the note, the broker has added Domino's to its coveted conviction buy list with a $51.80 price target. Based on its last close price, this price target implies potential upside of over 21% for its shares over the next 12 months excluding dividends.
Why has Goldman added Domino's to its conviction list?
Goldman is upbeat on Domino's prospects following the completion of its store conversions in Germany. It expects this to be the start of new store openings in that market, supported by a strong pipeline of new stores in France.
Overall, it believes that the European business is reaching an inflection point.
Goldman explained: "Europe's profit growth opportunity is expected to increase driven by improved operating leverage after reaching a certain number of stores. Management estimates this to be at 500 for France and Germany, 300 in the Netherlands and about 100 in Belgium. Per management store count in most of the European regions is now close to reaching this estimated inflection point in the next year or so, and we believe that this will result in a boost to the profitability position of DMP."
The broker also sees an opportunity for Domino's to accelerate its growth through acquisitions.
"The company has flagged that capital management is no longer a priority and that the group will be focused on acquisitions within the Domino's franchise globally. While opportunities within Europe are likely to offer greater synergies to DMP given the existing base, management noted it is also open to other regions which can provide a value accretive proposition, like Japan."
Overall, Goldman Sachs believes the company is well-positioned to achieve double-digit EBITDA growth in FY 2020 and FY 2021, which it feels makes its shares attractive at under 23x estimated forward earnings.
In light of this and the strong potential total returns on offer, the broker has added Domino's to its conviction buy list alongside fellow recent additions Freedom Foods Group Ltd (ASX: FNP) and Opthea Ltd (ASX: OPT).
