Domino’s Delivers Another Discounted Entry for Income Investors

Key Points

• Domino's Pizza missed Q2 expectations but provided a solid report, suggesting that growth, profits, and capital returns will continue. 
• Institutional activity suggests these investors will buy the July price dip and provide solid market support.
• Analysts' trends align with a well-supported market but may provide a headwind until later this year. 

Domino’s (NASDAQ DPZ) FQ2 results were weak, underperforming reduced expectations, with growth slowing and earnings in contraction, but that is not what investors should focus on. Those negative details are short-lived headlines that do not offset the increase, profits, improved business leverage, and substantial capital return.

Nevertheless, a knee-jerk reaction from the market led to a fall in DPZ share prices—putting it back into attractive territory where buy-and-hold investors are likely to scoop it up.

Institutional investor data tracked by MarketBeat suggests the group is likely to buy on the late-July price pullback. The group bought on balance in Q1 and Q2, as well as in the first weeks of July, netting nearly $2 in shares for every one sold, providing solid support for the market. Institutional support is significant as they own nearly 95% of the shares and are expected to continue buying. 

Domino’s Builds Leverage in Q2 

While Domino’s faces some headwinds in 2025—particularly around input costs and margin compression—it continues to grow its store count and comparable sales, boosting operating leverage.

Domino's Q2 revenue was as expected at $1.15 billion, up 4.7% on a constant currency basis, with strength across all segments. Global Retail sales grew by 5.6% on a combination of store count and comp-store growth, in-store and delivery options. Store count improved by nearly 1%, U.S. comps grew by 3.4%, and International comps by 2.4% aided by market share gains.

The margin is the sticking point for investors in 2025. The company improved income from operations but net contracted, resulting in a 5.5% decrease in GAAP EPS, driven by increased input costs and insurance expenses. The good news is that the earnings are sufficient to sustain the balance sheet health while investing in growth and returning capital, including dividend distribution and share buybacks.

Share buybacks reduced the count by nearly 1% on a year-to-date (YTD) basis and are expected to continue as the year progresses. The dividend yields approximately 1.5%, which is slightly better than the broad market average. It is reliable and accounts for roughly 40% of the earnings forecast reported by MarketBeat. 

Domino’s executives didn’t provide guidance but offered a favorable outlook, citing best-in-industry unit metrics and an ability to drive long-term value for franchisees and investors.

Analysts' Support for DPZ Aligns With Institutional Trends

While analyst sentiment in 2025 has moderated slightly, evidenced by some price target reductions, the overall tone remains constructive.

The 26 analysts tracked by MarketBeat forecast steady mid-single-digit revenue growth compounded by accelerated and accelerating earnings growth through the middle of the next decade. Earnings growth is forecasted to exceed 10%, with July stock prices valuing the business at a significant discount of only 10 times the 2035 forecast. Analysts have given DPZ stock a Moderate Buy rating and view the stock as fairly valued.

A move to the low end of the trading range is possible, but new lows are unlikely without a change to the outlook, which is unexpected. The likely outcome is that DPZ price action will remain range-bound in 2025. 

The opportunity is to load up on shares when they are low in the range, building a position for when macroeconomic headwinds subside and tailwinds can blow. In this scenario, DPZ shares will continue to pay their dividend while the company reduces the share count and builds store count and brand leverage.