Domino’s Pizza Stock Target Cut at RBC But Analyst Sees ‘Encouraging Trends’

RBC Capital reduced its price target for Domino's Pizza Group PLC (LON: DOM) from 400p to 390p in a note this week following the company's half-year results, which revealed a decline in both total orders and revenue.

Despite this, the investment bank remains bullish on the stock, maintaining an Outperform rating.

Domino's reported H1 2024 total orders of £35.1 million, slightly down from £35.4 million in H1 2023.

Group revenue also fell by 1.8% to £326.8 million. The decline was attributed to a slow start in the first quarter and increased discounting for franchisees, leading to an EBITDA miss of approximately 5.5% versus consensus.

However, RBC highlighted several “encouraging trends” in its latest note. The firm pointed out that Domino's has shown improving volume trends since mid-May, partly driven by the Men's Euro Football tournament and strategic discounting efforts.

The investment bank believes this could mark a turning point for Domino's, which has struggled with price perception issues.

Andrew Rennie, Domino's CEO, expressed confidence in the company's direction, noting that Q2 saw a return to order growth, particularly in delivery, with momentum continuing into July.

Rennie also highlighted the potential for further expansion in the UK and Ireland through new store openings, a loyalty trial, and a renewed focus on value and service.

Despite the price target cut, RBC's analysis suggests Domino's could be on the path to recovery.

Looking ahead, Domino's now expects its FY24 underlying EBITDA to be towards the lower end of the current range of market expectations, down from the previous guidance of underlying EBITDA being in line with market expectations.

So far this year, Domino's Pizza plc shares are down more than 23%, currently trading around the 298p per share mark.