FYI | Mar 15 2017
By Peter Switzer, Switzer Super Report
Domino's is an $80 stock! And other expert stock tips!
Being normal for most of us means missing out on insiders’ calls that actually do bob up in the media. However, normal media outlets just don’t care about brokers’ calls on companies such as Domino’s Pizza (DMP). They care more about some pathetic franchisees who have broken the law.
OK, I accept it’s important — socially — and it can even have a material market effect if the actions are rife in the overall system of Domino’s.
So today I’m going to share some of the insights I picked up last week doing my TV show, and the biggest headline was Morgan Stanley’s $80 call on Domino’s!
The current price is around $57 and Michael Wayne of Kosec, whose organisation was a big fan of the pizza-tech business, reckons he’d get hungry for the stock around $45. But what gives with Morgan Stanley’s pizza passion?
FNArena tells me the consensus target of brokers is $70.40, which suggests there is a 23% upside, but where does $80 come from?
Morgan Stanley’s number crunching on the company’s franchisee and corporate profitability is positive and is confident both will grow significantly. Europe remains a key value driver.
The broker notes the company’s system EBITDA margins are in line with global peers. Moreover, the more fragmented franchisee base versus its peers enables Domino’s Pizza to generate a higher share of system profitability and is confident both will grow significantly.
Note how it does not seem phased by the bad news that has grabbed headlines involving franchisees behaving badly with pay rates and related matters.
In February, when it reported, the company did well but not as well as the market expected, so it was belted. But, is that a good reason to reject the business model?
This is how The Australian reported it: “Investors have ignored Dominos Pizza’s record-setting achievement of hitting more than $1 billion in network sales for the first time to punish it for the cardinal sin of undershooting full-year guidance, sending its share price plunging nearly 17 per cent.”
It’s tempting to think that this price plunge is a sign of things to come, but Morgan Stanley on $80 and the consensus of brokers at $70, is telling me another story.
Don Meij, the CEO, is very good at his job and my interview with him gave me the feeling that this hiccup is, like a hiccup – a passing thing.
Last week I pushed my expert buddies for stocks they like post-reporting season and Challenger (CGF) and Bapcor (BAP) were two that got multiple honourable mentions.
Given the US rate rises should start this week and take the greenback up over the year and our currency down, the currency-sensitive stock plays point to ResMed.
Rudi Filapek-Vandyk likes Bapcor, as his stock to buy now and to hold for 2017, but he also like ARB — the bloke’s car parts business — Technology One (TNE), Link Administration (LNK) and Hansen Technologies (HSN).
My old mate George Boubouras thinks Brambles (BXB) is a contrarian play along with others that have been beaten up by the market lately. The current price is around $9.13 but the consensus target price is $9.93. Given the US and world economy is predicted to head over 2017 and 2018, a $9 bet on Brambles doesn’t look too adventurous!
Another company often mentioned in dispatches is oOh!Media (OML), which now sells for around $4.50, but the brokers think it should be closer to $5.03 and given my calls on the Oz economy and taking on board the success of digital signboards, this optimism for the stock does not look misplaced.
My feeling is that a lot of good companies have been mistreated as big fund managers chased big cap companies — banks and miners — and then they chased big dividend payers before they paid their dividends, which means there are some decent buying opportunities around now.
There could be some in May too if the usual “sell in May” stuff happens, but if Donald Trump gets some of his legislation proposals up, then it could be buy in May and stay!
I think most of these companies mentioned above have merit for the buy and hold types. A company like Hansen is around $3.39 while the target is $4.22, so we’re talking about a potential 24% upside, but if we can see half of that over a year, that would not be a bad return for a pretty good company.
Of course, any of these companies could disappoint, but I reckon if you put them together as a group with potential, they would certainly deliver.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
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