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Is Domino’s Pizza Enterprises worth $120 per share?

We revisit the pizza giant’s recent half year results and look at Macquarie’s 12-month price target on the stock.

Is Domino’s Pizza Enterprises worth $120 per share? Source: Bloomberg

The world’s love affair with pizza

Who would have thought…the pandemic proved to be a boon for pizza.

Over the last year the Domino's Pizza Enterprises Ltd share price (that’s the ASX-listed Domino’s Pizza entity) has risen about 57%. In the last decade its up many multiples of that.

In February Domino's flexed the power of its world-spanning brand: For the half ending December 31, the company reported that global food sales were up 16.5% to $1.84 billion, while earnings before interest and tax (EBIT) were up a more substantial 32.3% to $153.0 million.

Breaking this performance down by geography, Domino’s Japanese business was the standout: boosted by 68 new store openings, sales climbed 42.6% and earnings before interest more than doubled. Japanese online sales growth also outperformed the group’s baseline, jumping 56.6% in the half.

In Europe 50 new stores were opened, sales climbed 13.8% while earnings (EBIT) rose 18.2%. Sales weakness was attributed to unfavourable COVID conditions.

Finally, Australian group sales rose 5.7%, 13 new stores were opened, while earnings (EBIT) rose 9.8%.

Unsurprisingly too, as the pandemic has forced more and more people to stay indoors, online sales have surged, with online sales up 25.4% to $1.42 billion and now making up a significant percentage of total sales.

Striking a bullish tone to the market, the Domino’s Chief Executive, Don Meji said:

'Despite the unique challenges of this time, store openings have accelerated with an average of five new stores opening each week, which reflects the confidence Domino's, and our franchises, share in our future.'

More positively still, Mr Meji bluntly said 'We intend to significantly outperform this strong result in the Second Half.'

Domino’s Pizza Enterprises share price: Macquarie’s view

Analysts from Macquarie responded bullishly to Domino’s interim report, reiterating their Outperform rating while also bumping up their 12-month price target to $120.20 per share.

Describe as a strong result, the investment bank said the short to mid-term outlook was solid and that the company's current valuation was justified as a result of double-digit earnings growth expectations.

While optimistic, the investment bank has taken a cautious view to the second-half of FY21, flagging that ‘with Japan cycling strong comps in 4Q, FX a headwind, and commodity headwinds anticipated in ANZ.’

Despite those concerns, Macquarie analysts have raised their earnings per share estimates by Concerns aside, by 8.9%, 28.9% and 27.2% between fiscal 2021 and 2023.

And from a valuation perspective, it was noted that:

‘In our view, FY2 P/E of ~35x is explained for a business we expect to grow in excess of double digits p.a., with a path of medium-term earnings revisions potentially skewed higher, and further accretive acquisitions possible if not probable.’

DMP last traded at $89.48 per share, implying a market capitalisation of $7.74 billion and an earnings ratio of 47x.

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