Domino’s Pizza Inc. (DPZ) is a leader in the pizza delivery business, having pioneered the concept 50 years ago, recalls John Staszak, a leading analyst with the independent Wall Street research firm Argus Research.

Domino’s is primarily a franchise operation that derives revenue from fees and the sale of materials to franchisees. The company also directly owns almost 600 stores and uses them as a base for testing menu changes and as a pool for franchise liquidity. The company has operations in 80 countries.

We expect the addition of 250 U.S. stores and 856 international locations in 2019 to benefit revenue over the next 12 months. In addition, we expect DPZ to broaden its technological lead over competitors.

We also like the company’s stable comps and strong store-level cash flows, which are much higher than those of other franchisees.

In June 2018, Patrick Doyle stepped down as CEO and was replaced by Richard Allison, the president of DPZ’s international division. We expect a smooth transition and look for the company to maintain its focus on aggressive pricing and digital initiatives.

U.S. same-store sales rose 3.4% in 4Q19, down from 5.6% growth in 4Q18. Domestic same-store sales have risen for 35 straight quarters.

Fourth-quarter operating earnings came to $3.13 per share, up from $2.62 in the prior-year period. For all of 2019, revenue rose 5% to $3.6 billion, while adjusted earnings rose to $9.57 per share from $8.42 in 2018.

To reflect prospects for accelerating U.S. comps, new menu items in 2Q20, and easier comparisons going forward, we are raising our 2020 EPS estimate to $11.30 from $10.90 and setting a 2021 estimate of $12.80.

We think Domino’s Pizza can continue to grow and gain market share in a fragmented market (i.e., mom and pop pizzerias) more rapidly than its current valuation suggests. Our long-term rating also remains "buy".

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