Domino's Pizza Inc. (DPZ) shares are currently experiencing a decline following a revised forecast from Guggenheim analyst Gregory Francfort. While maintaining a Neutral rating, Francfort has adjusted the price target downwards from $490 to $450. This revision is primarily driven by expectations of persistent industry-wide challenges that are projected to extend into the latter half of 2026. The company is poised to release its fourth-quarter results on February 23 at 8:30 a.m., which will be closely watched by investors.
Analyst Francfort's decision to trim the earnings forecasts for both 2025 and 2026 underscores his cautious outlook. He noted that the valuation appeared more balanced when shares momentarily dipped below $400 earlier in the month, suggesting that at current levels, the stock's potential downside risks are somewhat contained, despite ongoing competition and consolidation within the pizza sector. He also pointed out that tougher year-over-year comparisons in mid-February, influenced by last year's 'Best Deal Ever' promotion, could create a more attractive entry point for investors.
Despite Domino's impressive comparable sales growth in the third quarter in the U.S., Francfort anticipates a deceleration in momentum for the fourth quarter. His models now predict quarterly same-store sales growth below the market consensus, attributing this to a general softening in industry demand. The analyst highlighted several factors complicating short-term trend visibility, including calendar variations, fluctuating weather conditions, and the strategic timing of promotional activities. For instance, January's 'Boost Week,' which concentrated on carryout orders, coincided with unusually cold weather, potentially diminishing its traffic-boosting effects.
Looking ahead, Francfort projects a modest improvement in trends during early 2026, buoyed by the upcoming tax refund season. He also observed that Domino's currently trades at a valuation discount compared to its major quick-service counterparts. This gap, he believes, stems from slower global unit expansion and concerns regarding the long-term growth prospects of the pizza category. The increased competition from third-party delivery services has also intensified pressures on historical growth rates across various cuisines.
Nevertheless, Francfort remains optimistic about Domino's ability to navigate these challenges. He noted that the company has successfully increased its market share in the U.S. pizza sector since the pandemic began. He posits that further gains are achievable, especially as competitors such as Pizza Hut and Papa John's International, Inc. (PZZA) continue to face their own struggles. A potential divestment of Pizza Hut, he suggests, could accelerate store closures, indirectly benefiting Domino's sales. However, Francfort cautioned that while competitive closures might provide incremental sales growth, it is unlikely to fully restore the peak momentum seen in previous years. Furthermore, he does not foresee any new debt issuance in 2026, given the prevailing elevated interest rates.
In summary, Domino's Pizza is grappling with a challenging market environment, leading an analyst to reduce its price target. The company's fourth-quarter performance and future strategies will be crucial in determining its ability to overcome industry headwinds and sustain market share growth amidst intense competition and shifting consumer behaviors.