Thursday, February 20, 2020

Domino’s Stock Becomes Hot Again, Ahead of Results

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What’s happening: Domino's Pizza is scheduled to report its fourth-quarter results before the opening bell on Thursday, February 20. The stock, which underperformed over the past year, has spiked in the last five trading days.

What happened: Domino's shares came under intense pressure after the company reported very disappointing results for the second and third quarters. The stock has risen sharply over the past few days, as investors await Domino's fourth-quarter results with bated breath. After several disappointing quarters, expectations are high from the world’s largest pizza chain. In fact, over the past three months, revenue estimates for the quarter have been raised.

  • The consensus revenue estimate stands at $1.13 billion, representing a 4.6% year-over-year increase.
  • The estimate for earnings is $2.97 per share, with 13.4% growth from the same quarter in the previous year.

Why it matters: Domino’s has had a terrific run for almost a decade. The company has delivered strong growth, driven by new store openings and healthy same store sales growth. The share price has reflected this phenomenal performance, climbing from less than $10 in 2010 to closing the day near $300 on Wednesday. That’s almost 3,000% growth.

More recently, however, the Michigan-based company has struggled and stumbled. Growth has started to cool down and so has the stock.

Despite its large market share in the US and continued expansion in the Asian and Latin American markets, Domino’s growth weakened through most of 2019. Domino's warned of a slowdown in sales and lowered its medium-term sales outlook from 8-12% growth to 7-10% growth.

Citing the company’s strong fundamentals, analysts expect Domino's to have generated robust sales in the fourth quarter. The company has undertaken several sales initiatives, which may have benefited its performance. There have been reports of Domino's seeing growth in its already established markets of Japan, Canada, the UK, Italy and Switzerland as well as in emerging markets, including China, Brazil and Indonesia. The company has also started to gain momentum in countries like Australia, New Zealand and Russia.

On the other hand, currency headwinds are expected to negatively impact the fourth-quarter results. The company is also facing continued pressure from food delivery services like UberEats and DoorDash.

Domino’s Australian-listed company has already reported fourth-quarter results. The shares in Australia gained 15% on upbeat results.

How the shares have performed so far: Domino’s stock has underperformed the market in the past year, gaining around 6% versus a 22% rise in the broader S&P 500 index. The shares have spiked in the last five trading days, gaining close to 8%.

What to watch: With most companies reporting upbeat results this earnings season, Domino’s is under pressure to beat estimates this quarter. Management is also expected to provide details of the coronavirus impact on its business, since the company has 274 stores in China, although none are in the Hubei province.

The Markets Today

     

Investors will be watching WTI crude oil today, with oil futures settling near three-week highs on Wednesday and ahead of the EIA’s weekly update on US petroleum supplies.

Context: Crude oil futures rose 2.4% on Wednesday amid a decline in daily confirmed cases of the coronavirus and the US imposing sanctions on Rosneft Trading SA, the trading unit of Russian oil giant Rosneft.

Details: After settling near three-week highs on Wednesday, crude oil futures added more gains to reach another high on Thursday, up 0.7% in today’s trading.

WTI crude for March delivery surged 2.4% to end at $53.29 per barrel on Wednesday, after settling unchanged in Tuesday’s session. Brent crude also recorded its seventh consecutive gain, climbing 2.4% to settle at $59.12 a barrel on ICE Futures Europe.

China's Hubei province reported only 349 new cases on Thursday, down from 1,749 cases in the previous day. The increase in death count was at least 114.

Apart from the coronavirus impact, investors are also focusing on conflicts in Libya. The region’s oil production fell to 123,500 bpd (barrels per day), from 1.2 million bpd recorded before the current crisis.

The American Petroleum Institute reported a rise of 4.2 million barrels in US crude supplies for the week ended February 14. The report also showed a decline of 2.7 million barrels in gasoline stockpile and of 2.6 million barrels in distillates.

Why it matters: Following the recent strong performance of crude oil, investors would be looking for positive reports from the EIA (Energy Information Administration) on crude inventories. The weekly update on petroleum supplies are releasing a day later than normal due to Monday’s Presidents Day holiday.

What to watch: Preliminary estimates show a rise of 3.3 million barrels in US crude inventories for the week ended February 14. The EIA is also expected to report a gain of 300,000 barrels for gasoline and a drop of 1.6 million barrels for distillates for the week.

Other Markets: European indices are trading mixed today, with the UK 100 rising 0.1%, while German 30 and French 40 losing 0.3% and 0.2%, respectively.

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What else to watch today

     

Russian retail sales, jobless rate and gross domestic product, Canada’s new housing price index and ADP employment change, Brazil’s industrial entrepreneur confidence index, Argentina’s consumer confidence index, Eurozone’s consumer confidence indicator, US initial jobless claims, Philadelphia Fed manufacturing index and speeches by Federal Reserve Bank of Richmond President Thomas Barkin and ECB’s Guindos.