By Melvin Pasternak
When you think of pizza, you probably don't think of technology. But Domino's Pizza
), one of America's largest pizza chains, has combined the two into a formula for making dough.
Prior to 2010, the stock struggled to break $15 as revenue and earnings growth were sluggish. But between 2010 and the end of 2012, earnings accelerated almost 32%, going from $1.45 to $1.91 in the three-year period. The stock responded with a vengeance, up nearly 500% since the summer of 2010.
The earnings and share price acceleration can be attributed to several factors: successful advertising campaigns, a tastier pizza recipe and international expansion and, perhaps most importantly, technology -- specifically digital ordering technology.
In many ways, Domino's is revolutionizing the way pizza is ordered and delivered. Want a steaming-hot pizza? No need to pick up the phone and speak to a person to place an order. Now there's an app for that.
In 2011, Domino's created an app to order a pizza through an Apple
) iPhone. A year later, it followed with an app built for Google's
) Android platform and Amazon.com's
) Kindle Fire. And just this month, the company launched its newest voice-activated ordering app for Windows 8 smartphones. With the addition of this newest app, Domino's pizza can now be ordered on nearly 95% of all smartphones in the United States.
Last year, Domino's made more than $2 billion globally from digital sales -- making it one of the world's leading technology-driven brands. In fact, the pizza chain's mobile and online ordering systems brought in 30% of all revenue in 2012.
During the first quarter of 2013, digital ordering accounted for more than 35% of sales. According to Domino's CEO, Patrick Doyle, digital ordering -- through online and mobile platforms -- will likely account for 50% of all orders in the coming years.
Drone delivery being tested
Domino's is driving digital applications even further. In the future, the company may have drone helicopters replace pizza delivery drivers. This could even be a reality in the next several years, as soon as unmanned autonomous vehicles (UAVs) are approved for commercial operation.
These innovative technological solutions are helping push Domino's stock higher.
Since June 2010, when shares hit a low near $10, they have been on a major uptrend surging nearly 500% to date.
After touching a high near $42 in March 2012, DPZ retreated to a bottom around $28 in June 2012, but quickly bounced back, forming an accelerated uptrend line.
During the June 10 trading week, shares touched an all-time high above $61 and show no sign of slowing. DPZ is currently trading above the accelerated uptrend line.
A small shelf of old resistance, now new support, rests around the $53 level. As long as shares can stay above $53, they should continue to move higher. With no historical resistance in sight, DPZ could rise further. The next logical target is $70, a round number where the shares may hit new resistance.
The bullish technical outlook is supported by strong fundamentals. For the upcoming second quarter, scheduled to be reported July 23, analysts expect increased digital sales will push revenue up 7.7%, to $405.2 million, compared with the same quarter last year.
A nourishing dividend
For this year, analysts anticipate increased global demand, coupled with wider adoption of digital ordering technology, will help revenue climb 6.6%, to $1.79 billion.
The earnings outlook is equally bright. For the upcoming second quarter, analysts anticipate increased sales volume will cause earnings to rise 19%, to 56 cents a share. And analysts expect full-year 2013 earnings will clock in at $2.40 per share, also a 19% increase.
In addition to a strong fundamental outlook, the stock has a forward annual dividend yield of 1.3% (80 cents per share).
Risks to consider:Domino's has emerged as a leader in digital ordering technology. However, as competitors adopt similar technologies, Domino's sales could suffer. Traders should keep an eye on the competitive response of other pizza delivery chains.
Action to take:
-- Buy DPZ at the market price.
-- Set stop-loss at $52.98, just below a small shelf of support.
-- Set initial price target at $69.98 for a potential 17% gain by Sept. 30.
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