BMO upgrades Domino's Pizza, predicts 35% rebound in struggling stock
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BMO Capital Markets says now is the time to buy Domino's Pizza as the stock is set to surge 35% driven by solid demand following underperformance. The firm upgraded the stock to outperform and maintained its $430 price target, which implies a nearly 35% upside from where shares currently trade. Shares are currently near multi-year lows and have shed more than 43% year-to-date. The upgrade comes in conjunction with BMO's industry survey of more than 1,000 consumers, which showed that there is a favorable risk versus reward for the fast-food chain going forward. "Consumers expect a net increase in pizza spending over the next six months and DPZ customers expect the strongest net increase in spending intentions over that timeframe," wrote analyst Andrew Strelzik in a Friday note. He added that concerns of "pizza-fatigue" seem overblown, given the results. Concerns priced in Domino's will also benefit from improving labor market conditions that could help ease driver shortages. "Data is beginning to show potentially broadening labor pool availability that could help move DPZ's delivery driver staffing challenges in the right direction," said Strelzik. "While we recognize recent changes in data sets are small, it could be a harbinger of further increases in labor availability to support DPZ's staffing recovery if the economy continues to slow." To be sure, BMO's survey results did not find that consumers are trading down, which would have given further support to Domino's. And, third-party delivery services still remain a "potential back-stop" to growth. Still, these concerns are well-represented in the shares, which have slumped this year and are trading at a relative discount.