Domino’s Pizza ( NYSE: DPZ ) stock gained in premarket trading after BMO Capital Markets analyst Andrew Strelzik upgraded the stock to “Outperform” on Friday.
Strelzik said that the risk/reward dynamics for the stock have become more attractive given lowered expectations into year-end, favorable survey data to support continued sales momentum, and nearly 20% drop for the stock since late August, pricing in much of the present concerns.
In terms of the favorable survey data, Strelzik pointed to a proprietary survey of 1,000 consumers with a focus on the pizza category which implied a net increase in pizza category spending over the next 6 months. He also noted that there was no sign of consumer trade-down in the survey results.
He added that the company’s struggles with elevated labor costs could be on its way to easing.
“Our confidence is increasing in DPZ’s ability to ease delivery driver staffing challenges,” he told clients. “Data is beginning to show potentially broadening labor pool availability that could help move DPZ’s delivery driver staffing challenges in the right direction. While we recognize recent changes in data sets are small, it could be a harbinger of further increases in labor availability to support DPZ’s staffing recovery if the economy continues to slow.”
As such, Strelzik maintained a $430 price target and upgraded shares from a Hold to Buy-equivalent rating, telling clients that “shares potentially offer a 4:1 risk/reward.” Domino’s Pizza ( DPZ ) share rose 1.21% prior to Friday’s open despite broadly pessimistic premarket action .
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Domino’s Pizza shares drive higher as BMO says shares offer ‘4 to 1 risk/reward'