Domino's Pizza

Krause Fund Research Spring 2012 Consumer Discretionary Recommendation: HOLD

Analysts

Dongfang Qi Dongfang-qi@uiowa.edu Ziyi Wang ziyi-wang@uiowa.edu Austin Dean austin-dean@uiowa.edu Chris Speer christopher-speer@uiowa.edu

Domino’s Pizza Inc. (NYSE: DPZ)

April 16, 2012

Current Price $35.69 Target Price $33-$40

DPZ Delivers Consistency

 Domino’s Pizza Inc. operates a franchise model business which allows for relatively high returns on invested capital. A business model of this type places the corporation in a position to handle marketing. Domino’s has benefited from a strong marketing campaign since 2009 that has increased market visibility and brand image.  Domino’s Pizza Inc. has placed a greater emphasis on international expansion in recent years. During 2005-2010 Domino’s international network grew 48% from 2,987 stores to 4,422 stores. International expansion offers Domino’s its greatest value potential.  Over the past 3-5 years Domino’s has made a concerted effort to improve the palatability of their core products. This effort, along with the subsequent marketing campaigns have increased brand loyalty and customer preference which has had a profound effect on increases in revenue and number of franchise openings.  Domino’s is not immune to market trends but the CEO describes his company as “recession resistant”. The following analysis shows that Domino’s is somewhat insulated from changes in unemployment but is affected by other external factors such as GDP and disposable income.  Along with improving its core products, Domino’s has made a push to expand the breadth of its menu to differentiate itself from more basic pizza delivery companies. By offering customers a wider range of items the company has the potential to earn more revenue per customer.

Company Overview

Founded in 1960 and headquartered in Ann Arbor, Michigan, Domino’s Pizza Inc. (DPZ) is the market leader in the United States pizza delivery and second largest pizza company...