Domino's Pizza Enterprises (ASX: DMP), Australia's prominent fast-food retailer, witnessed a notable decline in its share price on Tuesday, dropping by as much as 5.03% to AU$36.64 apiece (at 12:53 PM AEST), marking its lowest level since August 2019. Analysts at Morningstar attribute this downturn to concerns surrounding the full potential realisation of the company's Japanese and French operations in the near term.
Morningstar's analysts express skepticism regarding the immediate unlocking of the full potential of Domino's Pizza's Japanese and French operations. They anticipate higher marketing costs in Japan, which could exert pressure on near-term profit margins. However, despite these challenges, the brokerage expects local store growth to rebound. Morningstar emphasises that investor sentiment may be influenced by these challenges and weaker trading conditions in certain markets.
In response to these concerns, Morningstar trims its earnings per share (EPS) estimate for Domino's Pizza for the fiscal year 2025 by 11%, revising it down to AU$1.88. Despite this adjustment, Morningstar asserts that the company's growth potential remains intact. The brokerage maintains an unchanged long-term earnings outlook and retains a fair value estimate of AU$61 for Domino's Pizza Enterprises.
Meanwhile, another brokerage, UBS, also revised its price target (PT) for Domino's Pizza downwards, from A$42 to A$40. UBS underscores the need for the Japanese stores to mature before witnessing accelerated store growth.
Morningstar anticipates Domino's Pizza's network to expand to 6,200 stores by fiscal year 2033, which falls short of the management's long-term target of 7,100 stores. Despite this, the brokerage remains optimistic about the company's prospects over the long term.
In summary, while Domino's Pizza Enterprises faces challenges in realising the full potential of its Japanese and French operations in the near term, analysts emphasise that its growth potential remains robust. Investor sentiment may be impacted by these challenges, leading to adjustments in earnings estimates and price targets. However, the long-term outlook for Domino's Pizza Enterprises remains promising, with expectations of continued expansion and growth.