Domino's Pizza: Risky for the Long Term - Barron's

| About: Domino's Pizza, (DPZ)

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Domino's Pizza by Kopin Tan

Summary: Domino's Pizza's (NYSE:DPZ) shares are up 54% in the last 9 months, and the company is sharing the pie with investors, paying out a $13.50 dividend per share and planning a $200 million stock buyback. Financing these moves is a $1.85 billion recapitalization, adding more debt to the chain's balance sheet. Taking advantage of cheap debt could be a risky move for the company, whose same-store sales in 2006 declined for the first time in over 10 years. Projections that wheat and corn prices, two main pizza ingredients, will climb due to low inventories and high demand will further threaten Domino's margins. Last week, Bear Stearns analyst Joseph Buckley downgraded the stock, noting that the company's debt load will be 7x 2007 EBITDA of about $261 million. The stock buyback may give shares a short term boost but all the good news may already be priced into the stock, making any further upside seem beyond the horizon.
Related: Domino's Sets Special Dividend of $13.50/shr (Reuters) • Analysts Missed the Boat With Domino's Pizza

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