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Why the Domino’s Pizza share price is sinking lower today

James Mickleboro
Small Rustic Pizza

The market may be pushing higher today, but the same cannot be said for the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price.

In late morning trade the pizza chain operator’s shares are down 3% to $49.31.

Why is the Domino’s share price tumbling lower?

The catalyst for today’s decline appears to be a broker note out of UBS this morning.

According to the note, the broker wasn’t overly impressed with its annual general meeting update on Monday.

As a result, UBS has downgraded its shares from a buy rating to neutral. It has, however, lifted its price target slightly to $50.80.

The broker notes that Domino’s network sales were in line with expectations, but was disappointed with its new store growth.

In case you missed it, at its AGM Domino’s reported a 10.6% increase in network sales and a 4.1% lift in same store sales financial year to date. It also revealed that 42 new stores have opened so far in FY 2020. This includes its first stores in the new market of Denmark.

UBS appears concerned that it could fall short of store opening expectations in FY 2020 after this “soft” start.

So, with its shares climbing strongly over the last three months, it sees limited upside potential in the near term. As a result, it has cut its recommendation to a neutral rating.

The bullish view.

However, analysts at Goldman Sachs don’t share this view. This morning they retained their conviction buy rating and $55.30 price target on the company’s shares.

Goldman was pleased with the start Domino’s has made in its store rollout and believes it is well-placed to achieve its estimate of 100 store openings in the first half.

It also notes that re-franchising of corporate stores in Australia has begun with encouraging initial results. This was a key concern that the broker had in the ANZ region. As such, this is a big positive in its eyes.

Finally, Goldman was also pleased to see management reiterate its 3% to 6% same store sales growth and 7% to 9% store growth targets for the next 3 to 5 years.

Should you invest?

Whilst Domino’s shares are certainly not the bargain buy they were three months ago, I still see a lot of value in them for buy and hold investors.

In light of this, I agree with Goldman Sachs and would be a buyer of Domino’s along with fellow food shares Collins Foods Ltd (ASX: CKF) and Freedom Foods Group Ltd (ASX: FNP).

The post Why the Domino’s Pizza share price is sinking lower today appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited, Domino's Pizza Enterprises Limited, and Freedom Foods Group 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019