As was expected on Tuesday, it only took a day for investment analysts to take their red pens and mark down the value of Domino’s Pizza Enterprise shares.
But investors ignored the mark down to bid up the shares by more than 7%, eating into some of the 18% plus fall on Tuesday after the weak 2016-17 results.
The shares closed up 7.2% yesterday at $44.50 as investors listened to and believed the mea culpas from the company and CEO Don Meji.
But analysts slashed profit forecasts for Domino’s by as much as 22% and share price targets by nearly 40% in the wake of Tuesday’s disappointing profit announcement and weaker outlook for 2017-18.
Domino’s house broker, Morgan Stanley, cut its share price target from $80 to $55 and dropped its earnings forecasts by between 11 and 22% for 2018 to 2020 to reflect slower same-store sales growth and margin expansion, while Bell Potter cut its price target from $86 to $52.50.
Citigroup analysts downgraded profit forecasts for 2018 and 2019 by 15% and 19%, saying Australian profit margins were near their peak and Europe was a complex challenge to successfully execute across all geographies.
"Moreover, we expect more financial support of franchisees as they consolidate stores and open new stores," Citigroup’s head of research, Craig Woolford, said.
Citi last week cut their price forecasts(before the results) and said the company’s share price was too high – analysis that proved to be acute.
UBS analyst Ben Gilbert cut his profit forecasts by between 10 and 17% over three years and reduced his share price target from $71 to $60. He still likes the stock.
But Macquarie Equities analyst Andrew McLennan cut his recommendation from neutral to sell after dropping his share price target from $75 to $44.47.
