Domino’s (DPZ) Gears Up for Q3 Earnings: A Beat in Store?

We expect pizza giant, Domino’s Pizza, Inc. DPZ, to beat expectations when it reports third-quarter 2017 numbers on Oct 12, before the opening bell.

Last quarter, Domino's pulled off a positive earnings surprise of 8.20%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.75%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Domino's is likely to beat earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: Domino’s has an Earnings ESP of +2.12% as the Most Accurate estimate is $1.24 while the Zacks Consensus Estimate is pegged lower at $1.22. A favorable Earnings ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Domino's currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Domino's favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Notably, the second quarter of 2017 marked the 25th and 94th consecutive quarter of positive same-store-sales domestically and internationally, respectively, for Domino’s. We expect the company’s digital ordering system, focus on re-imaging and other sales initiatives to help sustain the momentum in the third quarter as well.

Particularly, the extended ways to order a pizza has kept Domino’s at the forefront of digital ordering and customer convenience, and is expected to be biggest driver of comps growth.

Meanwhile, the company’s solid brand positioning along with its efforts to accelerate its presence in high-growth international markets is likely to drive top-line growth in the to-be-reported quarter.

However, negative currency translation might dent the quarter’s profits given Domino’s significant international presence. Furthermore, higher costs are likely to hurt margins while a soft consumer spending environment in the U.S. restaurant space may restrict quarterly sales.

Other Stocks to Consider

Domino's is not the only company looking up this earnings season. Here are some other companies to consider in the Zacks Restaurant Industry as our model shows that they have the right combination of elements to post an earnings beat this quarter:

McDonald's Corporation MCD has an Earnings ESP of +1.29% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shake Shack Inc. SHAK has an Earnings ESP of +4.67% and a Zacks Rank #3.

Yum! Brands, Inc. YUM has an Earnings ESP of +2.76% and a Zacks Rank #2.

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