Shares of Domino's Pizza (DPZ 0.87%) have been on a tear recently. The stock is up about 15% since the start of the month and about 28% over the last 30 days. Despite these already-impressive returns for shareholders, one analyst thinks the stock is set to soar even higher over the next 12 months.
Following Domino's announcement earlier this week about partnering with ride-sharing company Uber Technologies (UBER -0.38%) to let customers order from Domino's on Uber-owned apps Uber Eats and Postmates, BMO Capital analyst Andrew Strelzik set an ambitious 12-month price target for the stock: $450. Is the stock really as undervalued as Strelzik thinks, even after its sharp rise over the last 30 days?
A key catalyst
Domino's announcement on Wednesday about its partnership with Uber was met with applause. The stock jumped, and many analysts raised their price targets for the stock.
Analysts seem optimistic about the deal's potential to increase demand for Domino's, helping address recent weak U.S. delivery sales. This aligns with Domino's CEO Russell Weiner's high expectations for the partnership, according to his comments in the company's Wednesday press release:
Our research in the U.S. and learnings from 13 of our international markets has shown us that taking orders using the Uber Eats Marketplace provides access for Domino's and its franchisees to a new segment of customers and what we believe will be a meaningful amount of incremental delivery orders once it's widely available.
As part of the global partnership, which lets customers order on Uber's apps but utilizes Domino's Pizza drivers for delivery, the important U.S. rollout will start in four pilot areas this fall. Management expects a nationwide rollout by the end of 2023.
Of course, the keyword in this partnership is global. The company wants to bring these third-party ordering solutions to more international markets than the 13 already partnering with Domino's. The two companies have 27 international markets in common.
"This agreement has the potential for incremental orders from Uber Eats to 70% of Domino's stores around the world, including the U.S.," the company said in its Wednesday press release.
The path to $450
Strelzik believes the global partnership will provide a material lift to the pizza company's sales as the two companies roll out the offering in the U.S. and more international markets. Helping explain why he raised his price target for the stock from $395 to $450, Strelzik emphasized that this is already a "proven sales driver" since Domino's already utilizes Uber's apps in some international markets.
In addition, Strelzik notes that the catalyst comes at a critical time for the company, when U.S. same-store sales have been sluggish. Indeed, the analyst thinks the deal will be significant enough to eventually boost same-store sales growth rates in the U.S. by as much as 5 percentage points.
Investors, of course, should do their own due diligence to decide whether they think shares could appreciate another 16% over the next 12 months like Strelzik believes they can. But with the stock trading at a reasonable valuation of about 30 times earnings, and sales growth likely to get a bump from this partnership, $450 doesn't seem too far-fetched.
