Domino’s Pizza remains “one of the best” stories in food retail and should remain a key player in delivery, according to one Wall Street bank.
Shares of the world’s second-largest pizza chain jumped 3.5 percent Thursday after Credit Suisse upgraded its rating on the company’s stock, telling investors that the pizza restaurant should outperform in the next year.
“The stock has pulled back roughly 12 percent from recent highs, despite significant upside to forward earnings around tax [cuts]. We believe near-term concerns around competition are now priced in,” wrote analyst Jason West in a note to clients.
That the recent pullback in Domino’s shares is an opportunity for investors, West said. The analyst’s new price target of $220 is 15 percent above Wednesday’s closing price.
Shares are down more than 5 percent over the past six months, but have added nearly 6 percent in the past 30 days.
To be sure, West and others have recognized growing fears that, with the advent of third party delivery services, Domino’s could lose that advantage as other restaurants start exploring the option. Chains like McDonald’s have been testing delivery service in select metro areas, partnering with ride-sharing companies like Uber to carry food to customers.
But despite recent fears, a recent Credit Suisse survey of over 1,000 U.S. consumers calmed some of West’s concerns.
The survey found 77 percent of respondents have not changed their frequency of pizza ordering despite the availability of other delivery options. Domino’s also has a structural leg up over new delivery entrants, already boasting a well-established driver network and ordering technology, according to West.
“Considering: reduced expectations, significant upside from tax reform, and that Domino’s Pizza is still one of the best growth stories in retail, we believe shares are poised for recovery over the course of 2018,” he wrote.
—CNBC’s Michael Bloom contributed to this report.