Option Trade
Domino's Pizza, Inc. (NYSE:DPZ) Calls 
Wednesday, October 07, 2015

**OPTION TRADE: Buy the DPZ Dec 2015 110.000 call (DPZ151218C00110000) at approximately $4.00. Place a pre-determined sell at $8.00.

Note: No protective stop losses added as yet -- but if you wish to do so make it $1.60.

by Ian Harvey

October 07, 2015

Introduction

Domino's Pizza, Inc. (NYSE: DPZ), a pizza retail chain that operates in over 80 markets with 12,119 locations, will issue its Q315 quarterly earnings data tomorrow morning, Thursday, October 8th. Analysts expect the company to announce earnings of $0.74 per share and revenue of $486.00 million for the quarter. The company has been outperforming rivals such as Yum Brands' Pizza Hut and McDonald's in the United States due to digital investments to improve online and mobile ordering.

Domino’s is a revolutionary company in so many ways: an old name, but constantly reinventing itself with a better product and better technology to service the customer.

EPS estimates have been gradually improving in the days leading up to its Q3-215 earnings results, which is also reflective of positive sentiment.

From a technical view, shares are setting up to head back into a near-term bullish trend as the 200-day moving average is close to break above its 50-day moving average. Shares are holding up well above the $100-support level, and any major weakness that may have tested that level was macro-economic related. If shares of DPZ were to trade at current growth rates, and if Thursday's earnings turn out to be particularly positive, shares of DPZ should reach a short-term price target of $113.

Technical Details

Domino's Pizza opened at 107.26 for trading on Wednesday morning. The firm’s 50 day moving average price is $108.29 and its 200-day moving average price is $109.05.

The company has a market capitalization of $5.89 billion and a PE ratio of 34.59.

Domino's Pizza has a one year low of $75.64 and a one year high of $119.73.

Earnings

Previous Earnings

Domino's Pizza last issued its quarterly earnings data on Thursday, July 16th. The company reported $0.81 earnings per share (EPS) for the quarter, beating the Zacks’ consensus estimate of $0.79 by $0.02. The company had revenue of $488.60 million for the quarter, compared to the consensus estimate of $489.39 million. The firm’s revenue was up 8.5% compared to the same quarter last year.

During the same period in the previous year, the business posted $0.67 earnings per share.

Future Earnings

On average, analysts expect Domino's Pizza to post $3.50 EPS for the current fiscal year and $4.02 EPS for the next fiscal year.

Why Dominos Pizza?

• The revenue growth came in higher than the industry average of 3.9%. Since the same quarter one year prior, revenues slightly increased by 8.5%. Growth in the company's revenue appears to have helped boost the earnings per share.

• Domino's Pizza Inc has improved earnings per share by 20.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Domino's Pizza Inc increased its bottom line by earning $2.86 versus $2.47 in the prior year. This year, the market expects an improvement in earnings ($3.50 versus $2.86).

• The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 19.4% when compared to the same quarter one year prior, going from $38.46 million to $45.91 million.

• Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 36.61% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

Positive Factors

• Domino's announced the opening of its first store in Italy, in the northern city of Milan. ePizza S.p.A, doing business as Domino's Pizza Italia, holds the new master franchise rights to operate the Domino's brand in the country.

• On September 28, the company updated its same store comparisons for Q3-2015, and the news did not manifest as to terribly positive for shares, yet the results were still quite strong. The company expects its domestic company-owned stores to grow sales by 11.5% over the prior year, and franchised stores to grow by 10.4%.

• In addition, DPZ announced that its subsidiaries intend to complete a recapitalization transaction, which will include the refinancing of a portion of their outstanding securitization debt with a new series of securitized debt. However, the increased level of share buybacks should offset any near-term weakness in earnings.

• EPS estimates have been gradually improving in the days leading up to its Q3-215 earnings results, which is also reflective of positive sentiment.

• Historically, pizza revenues get a big boost in the United States during football season, both at the college and professional levels. Celebrity endorsements of its new "emoji ordering" functions may cause some Baby Boomers to scratch their heads, but Millennials are loving the new technology. In fact, according to Forbes, the company took home the latest Social Media award at this year's 56th Annual CLIO Awards - or the "Oscars of Advertising."

Analysts Opinions

TheStreet Ratings team rates Domino's Pizza Inc as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation…..

“We rate Domino's Pizza Inc (DPZ) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, increase in net income and solid stock price performance. We feel its strengths outweigh the fact that the company shows weak operating cash flow.”

The company has been the subject of a number of research reports:-

• BTIG Research initiated coverage on Domino's Pizza in a report on Wednesday, July 15th. They set a “buy” rating and a $139.00 target price on the stock.

• Zacks upgraded Domino's Pizza from a “hold” rating to a “buy” rating and set a $133.00 price objective for the company in a research report on Wednesday, July 15th.

• Goldman Sachs upgraded Domino's Pizza from a “neutral” rating to a “buy” rating and set a $122.00 target price for the company in a research report on Wednesday, September 9th.

• Longbow Research reissued a “buy” rating and issued a $135.00 price target on shares of Domino's Pizza in a research note on Wednesday, September 2nd.

• Finally, Maxim Group began coverage on Domino's Pizza in a research note on Friday, August 28th. They set a “buy” rating and a $124.00 target price for the company.

One equities research analyst has rated the stock with a sell rating, ten have issued a hold rating and nine have assigned a buy rating to the company. The stock currently has a consensus rating of “Hold” and an average price target of $119.07.

Harvey’s Options Volatility Indicator

Conclusion

Domino's is a revolutionary company in so many ways. It is extremely difficult to find growth in the restaurant sector, especially since the sector relies heavily on seasonality and the sentiment of the consumer. DPZ shares have found a way to grow despite many weakness worries in the broader sector. Plus the fact that consumer sentiment is looking up in the U.S. can only add to their potential success.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the DPZ Dec 2015 110.000 call (DPZ151218C00110000) at approximately $4.00. Place a pre-determined sell at $8.00.

Note: No protective stop losses added as yet -- but if you wish to do so make it $1.60.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



Back to Stock Options Made Easy Home Page

Back to Option Trades from Option Trade – Domino's Pizza, Inc. (NYSE:DPZ) Calls - Wednesday, October 07, 2015



Get all the latest options news from
STOCK OPTIONS MADE EASY with our FREE newsletter


Enter Your Email Address

Enter Your First Name









Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.






Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name











Follow S_O_M_E on Twitter