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Is Domino’s Finally Ready to Deliver?

Back in 2007, Cramer recommended Papa John’s International over Domino’s Pizzabecause of the former’s superior execution, but things are different now. Domino’s is finally starting to deliver, with a new recipe, a great ad campaign and a growing international business. For these reasons, he now thinks DPZ is a buy.

Domino’s understands what it was doing wrong and has changed course. Beyond just making better pizza, the execution has improved dramatically. The company has a new lunch system, and ad spending should be up substantially this year. The numbers are starting to turn, too, with analysts saying that Domino’s is seeing a sequential sales lift in the high single-digit range so far this January. Even in 2008, with its parade of horribles from sky-high cheese prices to sky-high oil prices, Domino’s Pizza still made a ton of money.

Also, DPZ has always been very strong internationally, though less so here at home. Ten years ago international accounted for 30% of the company’s worldwide units, but now it’s 45%. These stores have posted positive same-store sales growth for the past 63 quarters, and management has said the company’s store count in its top ten international markets should double in number. With only about 9,000 stores over all, Cramer said, there’s plenty of room to grow both internationally and in the US.

In the past Cramer favored Papa John’s to Domino’s, but no longer, especially now that Pizza Hutis struggling, thereby reducing competition in the space. Pizza Hut’s parent company, Yum! Brands , pre-announced fourth-quarter sales that fell short of expectations in every region: down 8% in the US, down 3% in China, and down overseas 1%. Each region also decelerated from their third-quarter run-rates, with each US brand decelerating as well. With its parent company in a tough spot, Cramer thinks Pizza Hut can’t compete.

Right now it is clear that Domino’s Pizza has the best numbers for the first time in a while, Cramer said. In the third quarter the company’s domestic franchise same-store sales were up 0.3% versus 0.2% for Papa John’s International and down 13% for Pizza Hut. Domino’s is already the largest of the three by market share, yet the company is still taking share, especially from small independent chains that don’t have what it takes to survive.

Domino’s Pizza is also the cheapest, trading at 10 times forward earnings, versus 13 earnings for YUM and 12 times earnings for Papa John’s International. If Domino’s Pizza simply traded in-line with its competitors, Cramer said, then this $10 stock could go to $14.43, about 43% higher from where it is right now. Cramer thinks the stock has the potential to do even better than that.

Cramer's chartible trust owns Yum! Brands.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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DPZ
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