Jefferies trims target for Domino's Pizza but stays positive

Jefferies has trimmed its target price for Domino's Pizza Group following recently lowered guidance, but has kept its 'buy' rating on the stock on the back of its undemanding valuation.

The UK-based master franchise of the global takeaway chain reported on 6 August that full-year profit would be towards the lower end of the current range of market expectations after a slower start to the first half.

Market expectations at the time were for FY24 underlying EBITDA of between £144.3m and £149.2m, with a mean of £147.1m.

Jefferies said the new guidance implies a 2% cut to consensus estimates, and has cut its target price for the shares from 430p to 400p. Still, that new target price implies around 32% upside from current prices.

"Investors may wait for: 1) more evidence of increasing franchisee profitability translating into an acceleration in new store openings; and, 2) a sustained inflection around delivery growth," the broker said.

Nevertheless, the stock trades on a 5.1% free cash flow yield at 14 times full-year earnings, which Jefferies said is 30% below the historical average before Covid.