Shares in Domino's Pizza Enterprises Ltd (ASX: DMP) took a beating yesterday and closed the session 18% lower at $116.20.
That's a $26 per share loss for the pizza giant in a single day, as investors responded to its annual general meeting (AGM) update.
Today, the Domino's share price has lost a little more ground and is down 0.37% to $115.69 in afternoon trading.
The team at investment bank Goldman Sachs retains its buy rating on Domino's shares. However, fellow brokers aren't so rosy on the outlook for Domino's. So, they've trimmed their price targets in response to the announcement.
Here are the details.
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What led us to this point?
Before we analyse what the experts are saying, let's review what led to the Domino's share price taking such a hit.
Investors appear to be spooked by the company's performance in Japan, which was surprisingly weak for the period.
Domino's has an aggressive 'rapid store rollout' strategy in the region. It has grown its store base to 742 restaurants in 2020 from just 200 a decade ago.
Even though the Japanese government has rolled back COVID-19 restrictions, Domino's recognised negative growth in FY21.
As a result, Domino's management was unable to give guidance for FY22 at the AGM. Not even to confirm or deny whether earnings would come in behind or in front of FY21.
This bodes poorly for the Domino's share price. As pointed out by investing hall-of-famers Warren Buffet and Peter Lynch in their writings, the market prices shares based on past earnings and future earnings expectations.
The absence of a robust outlook in Japan appears to have disappointed investors. It has left many of their questions on expectations unanswered, and this is reflected in yesterday's share price losses.
What are brokers saying in response?
Leading brokers Citi, Morgans, Jarden, and Bell Potter have slashed their price targets for the Domino's share price.
Citi lowered its price target by almost $4 per share to $144.25. It also trimmed its forecast for earnings per share (EPS) by 8% and Japan store sales by 1%.
The weak performance surprised the Citi team. It said it is "flagging risk to FY22 sales given the current negative momentum comes ahead of the material Christmas trading period".
Analysts at Bell Potter also gave their price target a buzz-cut, wiping 16% off their valuation to $130 per share.
Jarden Securities also reduced its price target by 6% to $113, implying 2.3% downside potential on today's share price.
Fellow broker Morgans doesn't interpret the Japan slowdown as a signal that Domino's is failing there. The broker notes: " … nor does it suggest the strategy of rapid store roll out and 'fortressing' has lost any of its validity".
Morgans hasn't budged on its 'hold' recommendation but has slashed its Domino's share price target by 7.5% to $135.
Goldman Sachs retained its 'buy' rating but also trimmed its Domino's share price target by more than 5% to $147.
Domino's share price snapshot
Over the past year, the Domino's share price has risen by 37% compared to the S&P/ASX200 index gain of 21.5%.
