DPZ Domino's
Quality asset-light franchise, but the leveraged price already assumes steady unit growth; modestly overvalued.
The story
Domino's is an asset-light master franchisor. Its moat is scale in delivery logistics, a supply-chain commissary system, and a digital ordering platform that franchisees rely on. It is a mature US business with a long international unit-growth runway run by master franchisees, and it funds shareholder returns through a leveraged recapitalization. Growth is steady mid-single-digit from unit additions and modest comps, and aggregator competition caps pricing power.
Global net unit growth of 4-6% plus low comps supports about 5% near-term growth, above the 2.9% five-year CAGR, and a 10-year horizon because the international franchise runway is durable. Margin edges up to 20% as royalty and supply-chain leverage improve, and capital needs stay tiny at about 5x sales-to-capital. Beta sits slightly above the 1.0 anchor to reflect net debt of $4.7B, about 33% of enterprise value.
Value drivers
| Revenue growth (Y1) | 5.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 10y |
| Target operating margin | 20.0% |
| Years to target margin | 4 |
| Sales-to-capital | 5.00 |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 9.1% |
| Terminal WACC | 8.8% |
Valuation bridge
| PV of explicit FCFF | 5.83B |
| PV of terminal value | 6.81B |
| Equity value | 7.79B |
| ÷ shares → per share | $235.48 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 5.28B | 5.0% | 19.4% | 798.83M | 50.28M | 748.56M | 685.82M |
| 2 | 5.53B | 4.8% | 19.6% | 846.04M | 50.45M | 795.59M | 667.82M |
| 3 | 5.78B | 4.6% | 19.8% | 894.03M | 50.40M | 843.63M | 648.79M |
| 4 | 6.03B | 4.3% | 20.0% | 942.63M | 50.12M | 892.50M | 628.84M |
| 5 | 6.28B | 4.1% | 20.0% | 981.38M | 49.61M | 931.77M | 601.48M |
| 6 | 6.53B | 3.9% | 20.0% | 1.02B | 48.86M | 970.68M | 574.08M |
| 7 | 6.77B | 3.7% | 20.0% | 1.06B | 47.86M | 1.01B | 546.77M |
| 8 | 7.00B | 3.4% | 20.0% | 1.09B | 46.61M | 1.05B | 519.63M |
| 9 | 7.22B | 3.2% | 20.0% | 1.13B | 45.10M | 1.08B | 492.79M |
| 10 | 7.44B | 3.0% | 20.0% | 1.16B | 43.35M | 1.12B | 466.33M |
Key risks
- Third-party aggregators (DoorDash, Uber Eats) erode delivery share and US comps
- Refinancing risk and rate sensitivity on about $5B of securitized debt
- Master franchisee weakness abroad (e.g., DPC Dash, Domino's Pizza Enterprises) slows unit growth
Catalysts
- Uber Eats partnership and loyalty relaunch driving US carryout and delivery comps
- Acceleration of international net store openings back toward 1,000+/yr