What Today's Domino's Pizza Downgrade Means for Mutual Fund Investors (DPZ)

Before Tuesday’s opening bell, Domino’s Pizza (DPZ) was downgraded at Jefferies. Here’s what the move means for mutual fund investors.

Jefferies has lowered its rating on Domino’s Pizza from “Buy” to “Hold,” but has raised its price target from $93 to $101. This new price target suggests a 6% upside from the stock’s current price. The analyst firm expects DPZ to report FY2015 EPS of $3.44 and FY2016 EPS of $3.96.

Analyst Andy Barish noted: "We have viewed Domino’s Pizza as the go-to stock in mid-cap global growth within the
industry and continue to regard it as one of the top-performing operators, with superior growth metrics (MSD-to-HSD SSS, 6% global system unit growth & visibly taking share in a very fragmented category).

“While we continue to think the company can deliver modestly better than expected SSS and EPS (cheese prices corrected sharply lower in 4Q 2014) through 2015 and 2016, we believe the multiple has expanded to reflect this opportunity (now trades at ~14.5x ’16 EV/EBITDA after the stock has jumped 30% since June 9).”

Despite its growth potential, we view this stock as very expensive. The stock is currently trading at 28x 2015 earnings estimates and has a PEG around 5:1. We would assume that fund managers interested in DPZ would prefer to wait for a pullback.

Investors interested in DPZ may also consider one of the mutual funds listed below. These funds currently hold the largest stakes in the company.

The funds above allow investors to gain exposure to DPZ while remaining diversified. Investors interested in DPZ may also be interested in Papa John (PZZA) and Yum! Brands (YUM).