Domino's Pizza Enterprises (ASX:DMP) is at the centre of a sharp market debate after its share price plummeted to an 11-year low on the shock resignation of its chief executive officer. While Citi has downgraded the stock to Sell, other firms are taking a more tempered stance, with Evans & Partners and Barrenjoey lifting their ratings to Neutral and Overweight respectively.
Morningstar slashed its fair-value estimate by 21% to $46 — still well above Wednesday’s close of $16.96. Despite the sharp revision, analyst Johannes Faul believes the sell-off may be overdone.
“While the growth story has stalled, significant expansion opportunities remain in Europe and Asia,” Faul says. “We believe the market is losing faith in this growth potential, leaving shares materially undervalued.”
He argues the current share price implies no new store openings and flat EBIT margins going forward. “This extrapolates a tough period for Domino’s and fast food into perpetuity, in our view,” Faul adds.
Meanwhile, Citi’s Sam Teeger has taken a more cautious line, cutting Domino’s to Sell and slashing his target price 40% to $14.20.
“While we saw the current CEO to be more of a turnaround specialist than a longer-term solution, we were surprised by the company’s announcement yesterday that he will step down at the end of the year, after less than 12 months in the role, without any indication that the turnaround has been successful,” Teeger says.
He warns that the leadership shake-up may point to problems with the company’s turnaround plan.
“We expect a period of strategic uncertainty until a new CEO replacement is found.”
The company is currently down 0.59% intraday, trading at $16.860.