Domino's Stock Piping Hot, Says Analyst

Most analysts are already bullish on the pizza stock

Deputy Editor
Oct 18, 2019 at 11:49 AM
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Domino's Pizza, Inc. (NYSE:DPZ) is inching lower, despite a price-target hike from Guggenheim. The analyst lifted its price estimate to $310 from $280 -- a roughly 21% premium to last night's close -- and named the pizza chain its "best idea" in the restaurant space.

The broker added that the stock maintains "superior value" despite third-party delivery competition. Guggenheim also applauded the company's initiative toward opening more restaurants -- a move the analyst calls "fortressing," in an effort to speed up delivery times to a range of locations. 

The upgrade puts DPZ's consensus 12-month target price at $283.35, which sits at a 10.2% premium to current levels, and represents a region the equity hasn't touched since its pre-bear gap levels in mid-July. This bullishness isn't anything new for the brokerage bunch, though. Eleven in coverage call the stock a "buy" or better, compared to eight who say it's a "hold" or worse. 

DPZ Oct 18

Since bottoming out at an annual low of $220.90 in late August, the equity has managed to rebound, with recent pullbacks finding support at its 30-day moving average, which currently rests near the stock's year-to-date breakeven mark. However, the 200-day moving average could be a concern for some bulls. The trendline has served as stiff resistance for DPZ since the security sliced through the former area of support during that July bear gap. 

In the options pits, traders are singing a much more bearish tune. In fact, at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.30 puts have been bought to open for every call in the past 10 days -- a ratio that sits in the 79th percentile of its annual range, suggesting this rate of put buying has been quicker than usual. 

That being said, options are incredibly cheap right now, from a volatility perspective. Domino's Schaeffer's Volatility Index (SVI) of 24% sits in the extremely low 3rd percentile of its annual range. This means near-term options are pricing in very low volatility expectations for the pizza stock.


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