Leading broker JP Morgan (NYSE: JPM) recently changed its rating on Domino's Pizza Enterprises Ltd (ASX: DMP) shares.
Domino's has faced challenges in recent years, including cost pressures and weaker consumer sentiment in key markets.
Over the past 5 years, Domino's shares have fallen 70%, significantly trailing the S&P/ASX All Ordinaries Index (ASX: XAO), which has risen 45%.
Does JP Morgan expect things to turn around?
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Broker upgrade
In a 13 June research note, JP Morgan upgraded Domino's Pizza shares from underweight to neutral.
When issuing this ratings change, the broker noted:
We remain cautious on the outlook, but believe the discount built into the multiple for future consensus earnings downgrades now provides a large margin of safety. Earnings visibility remains low, however we see the balance of earnings risks to the downside as JPMe FY26 and FY27 EPS forecasts stand ~10% below consensus.
The broker also noted that Domino's has seen unprecedented turnover across its business. Notably, the CEO, CFO, Europe CEO, ANZ CEO, and Japan CEO have all left within the past 7 months, creating heightened uncertainty.
JP Morgan estimated that Domino's Pizza shares are trading at 14.7 times FY26's earnings. This is a substantial discount to its mature peers, which trade at around 18 times earnings.
On the company's outlook, the broker said:
The recovery in earnings is dependent on a large step-up in volumes, which is uncertain in a challenging consumer environment with inflation and cost-of-living pressures, particularly in Europe with DMP closing stores across said geographies and delaying medium- to long-term store rollout targets.
Why is the share price down so much this month?
Over the past month, Domino's Pizza shares are down 18%. The broker flagged tax loss selling is a likely contributor to share price weakness. Many investors with substantial capital losses sell their holdings before the end of the financial year to offset realised capital gains elsewhere.
Since Liberation Day, several S&P/ASX 200 Index (ASX: XJO) stocks have surged. For example, since 7 April, Lovisa Holdings Ltd (ASX: LOV) is up 55%, while Pro Medicus Ltd (ASX: PME) is up 54%. Those looking to realise these profits (who also own Domino's shares) might look to offset their gains with their losses.
What's JP Morgan's price target?
The broker also revised its price target on Domino's Pizza shares. JP Morgan's 12-month price target was revised from $29.50 (in February) to $20.33.
It's been a tough year for the company, with its share price falling 30% for the year to date. At the time of writing, Domino's Pizza shares are changing hands for $20.59. Therefore, according to JP Morgan, the share price will remain relatively flat from here for the next 12 months.
