Domino's shares extend gains as analysts back store closure plan
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The news: Shares Domino's Pizza reversed early losses on the ASX after the pizza delivery chain added 21.3% on Friday after announcing the closure of 205 loss-making stores.
The numbers: Domino's shares edged up 0.2% to $36.01 by 2:30pm AEDT, clawing back losses of more than 4% in morning trade. However, the company's share price has fallen from a high of over $160 in 2021.
Analysts made the following changes to their ratings after Friday's announcement:
- UBS retained a 'neutral' rating and upgraded its price target from $31.50 to $36;
- Macquarie upgraded its rating from 'underperform' to 'neutral' and lifted its price target from $28.20 to $35.10; and
- Morgans kept its 'hold' rating and increased its price target from $30.70 to $32.70.
The context: Newly-appointed CEO Mark van Dyck said on Friday that a comprehensive strategy review is underway to boost performance, with focus on Japan and France. The strategy will look to simplify the store network and the cost base, and develop a refined market strategy to drive long term value.
What they said: UBS said: "This change in the shape of the [Domino's] financials is likely to see a higher earnings multiple vs recent months as near term earnings risk has been removed, but also the rate of earnings multiple expansion is now more limited and well below levels of prior years".
Macquarie said: "The pace of new management enacting strategic change was a significant positive surprise to our initial expectations. We believe the key positive is the group refining its focus on franchisee sales and implications for long-term performance across the network".
Morgans said: "[Domino's] is taking the right approach in identifying cost savings to reinvest in its network, which should drive improvements in unit economics and hopefully in time lead to better shareholder returns".
The sources: UBS research, Macquarie research, Morgans research
