On Wednesday, Redburn-Atlantic revised its stance on Domino's Pizza (NYSE:DPZ) Group (DOM:LN) (OTC: DPUKY), a $1.66 billion market cap company with a 47.48% gross profit margin, downgrading the stock from Neutral to Sell. The firm also adjusted its price target to GBP 2.71 from the previous GBP 2.83. This decision was influenced by the upcoming franchise agreement expected to commence next year, which introduces additional costs for the company.
Domino's Pizza Group is anticipated to face increased expenses due to the new franchise agreement, alongside further investments and higher costs resulting from the UK budget. According to Redburn-Atlantic, these factors are likely to compress the company's structural base margins for the duration of the agreement. InvestingPro analysis indicates that short-term obligations currently exceed liquid assets, with several additional financial health indicators available to subscribers.
The firm has also revised its earnings per share (EPS) estimates for Domino's Pizza Group, projecting an 8% cut in 2025 and a 9% reduction in 2026. These revised forecasts position the firm's expectations 8% and 12% below the consensus for the respective years.
With the stock currently trading significantly above Redburn-Atlantic's price target of 271p and at a current P/E ratio of 17.35x, the downgrade to Sell reflects the firm's outlook on the stock's valuation relative to its future earnings potential. Based on InvestingPro's Fair Value analysis, the stock appears slightly overvalued at current levels. The new price target and rating suggest caution for investors considering the stock's current market performance and anticipated financial challenges.
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