As Global Pizza Delivery Market Grows, These FTSE, NYSE Stocks Are Winners
Investing.com | Aug 26, 2020 02:41
So far in 2020, a number of industries and businesses have clearly emerged as winners. One of them has been fast-food restaurants, like pizza chains, as diners, sheltering in place, have sought food delivery instead of eating out.
Today, we will take a closer look at UK-based Domino’s Pizza Group (LON:DOM), (OTC:DPUKY) a master-franchise arm of the U.S.-headquartered, Domino’s Pizza (NYSE:DPZ) to determine whether they could be long-term buys at current levels.
h2 FTSE 250 Member DOM Shares /h2DOM is the UK's leading pizza brand and an important name in the Irish market. It also holds the master franchise agreement for Switzerland and Liechtenstein and has operations in Germany, Iceland, Luxembourg, Norway and Sweden.
The first Domino's Pizza in the UK opened in 1985. Prior to 1993, when UK-based owners bought the franchise, the group was controlled from the U.S. In 1999, Alternative Investment Market (AIM) floated the company, which was followed by a move to the main market in 2008.
On Aug. 11, Domino's released interim results for the 26-week period that ended 28 June. Its UK and Ireland system sales, representing the sum of all sales made by both franchised and corporate stores, were up 5.5% to £628.9 million (or $826 million).
Management highlighted the jump in online orders in the second quarter. Analysts were pleased to see that the company decided to pay its deferred 2019 final dividend.
CEO Dominic Paul, the former boss of Costa Coffee—owned by Coca-Cola Company (NYSE:KO)—who joined Domino’s in May, provided a mixed outlook for the rest of the year. He said :
"While trading in the first few weeks of the second half has been encouraging, it is too early to conclude on how consumer behaviour will evolve."
Shareholders in the FTSE 250 member have been well rewarded. Year-to-date, DOM stock is up more than 7%. In March, it saw a 52-week low and in June hit a 52-week high. Since early spring, the shares have returned over 40%. Forward P/E and P/S ratio stand at 20.41 and 3.07, respectively.
The shares hover at 330p (US, OTC shares closed yesterday just below $9). In the case of short-term profit-taking of around 5%-7%, they would offer better value for long-term investors.
h2 Domino's Pizza In The U.S./h2
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Headquartered in Ann Arbor, Michigan, Domino's Pizza, the largest pizza company in the world based on global retail sales, is one of the top food chains that have benefitted from customer cravings in 2020.
The first Domino's store opened in Ypsilanti, Michigan, in 1960. While the U.S. operations expanded, its first international outlet started operations in Canada in 1982, opening in Winnipeg, Manitoba.
Currently, there are more than 17,100 stores—including more than 10,000 outside the U.S. The chain has about 770 independent franchise owners in the U.S., with more than 94% of Domino’s stores stateside franchise-owned.
On July 16, the group announced second-quarter results. Global retail sales, which were positively impacted by U.S. same-store sales, increased 5.7%. U.S. and international same-store sales increased by 16.1% and 1.3%, respectively, compared with the same period in the previous year.
Domino’s had global retail sales of more than $14.3 billion in 2019, with over $7.0 billion in the U.S. and nearly $7.3 billion internationally. This year in Q2, it had global retail sales of more than $3.4 billion, with over $1.9 billion in the U.S. and over $1.5 billion internationally.
The businesses generated $240 million in net income through the first half of the year, a 30% increase over 2019. In the U.S., Domino's gets more than 65% of sales digitally via the AnyWare suite of digital ordering technology. The Street regards its digital ordering and delivery infrastructure as a top asset.
During the quarter, Domino's acquired a non-controlling interest in Dash Brands Ltd., a privately-held company that is the master franchisee in China.
So far in the year, DPZ stock is up more than 42%. On Aug. 24, it hit an all-time high of $424.72. Long-term shareholders are delighted to note the growth since 2009, when the shares were around $9. Put another way, $1,000 invested in DPZ then would now be about $47,000.
Forward P/E and P/S ratios are 36.90 and 4.73, respectively. Finally, on July 15 the board declared a 78-cent-per-share quarterly dividend for shareholders of record as of Sept. 15.
h3 Bottom Line/h3Market participants who want to get a slice of the investment pie may consider buying the dips at Domino's Pizza either in the UK or the U.S. Both companies may be well-positioned to meet consumers’ increased appetite for comfort in the stay-at-home days of COVID-19, as in-person dining at restaurants will likely take longer to make a full comeback. Meanwhile, Domino’s in the U.S. and globally will probably see increased sales.
Australian investors may also want to do further due diligence on Australia-based Domino's Pizza Enterprises Ltd (ASX:DMP).
Finally, several exchange-traded funds (ETFs) focus on a range of restaurants and food-related businesses. They include:
- First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG)
- Invesco Dynamic Food & Beverage ETF (NYSE:PBJ)
- Invesco Dynamic Leisure and Entertainment ETF (NYSE:PEJ)
- iShares MSCI Global Agriculture Producers ETF (NYSE:VEGI)
- iShares Global Consumer Staples ETF (NYSE:KXI), which was covered here.
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