The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price slipped 4% following its annual general meeting update last Thursday. Big brokers have largely raised their share price targets despite retaining neutral to sell ratings. Here’s the run down.
FY21 trading update
The trading update highlights an 8.4% increase in group same store sales growth in the first 17 weeks of FY21.
Group CEO and managing director, Don Meij said that sales growth across the group was “now more normalised than at the initial peaks, in all regions above our medium term outlook”. Mr Meij pointed to Germany and Japan as outperforming regions given local coronavirus conditions and the assertive actions of management.
During this period, the business also recorded 74 new store openings, a record for this time of the year, and reflecting the high level of appetite in its franchised and corporate business to meet customer demand.
Despite short-term uncertainty and challenges, the business remains confident in its medium-long term outlook. Domino’s 3-5 year outlook targets annual same store sales growth between 3-6% and annual organic new store additions of between 7-9%. Given its ongoing strong performance, the company expects to see a record number of new stores open in FY21.
Cautious broker updates for the Domino’s share price
Big brokers updated their Domino’s share price targets last Friday with a largely neutral to negative tone. Domino’s trades at a price-to-earnings (P/E) ratio of almost 50. This compares to similar food businesses such as Collins Food Ltd (ASX: CKF) that trades at half that valuation.
Macquarie Group Ltd (ASX: MQG) raised its Domino’s share price target from $77.30 to $84.30 and retains a neutral rating. It notes that first quarter sales were ahead of expectations. However, new store openings was a disappointment but not surprising given the state of the pandemic outside Australia.
UBS Group AG (NYSE: UBS) also raised its Domino’s share price target from $70.00 to $72.00 and retains a sell rating. Sales during the first quarter were in-line with expectations but it expects lower sales growth to reflect the ongoing impact of the pandemic in other regions. The price target increase was given to reflect its performance so far.
Credit Suisse Group AG (NYSE: CS) was the only broker to lower its Domino’s share price target from $61.32 to $58.71 with an underperform rating. After reviewing the first quarter trading update, it notes slowing sales growth and expects the pandemic to continue to impact the business ex-Australia.