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Domino’s Pizza shares upgraded on chain's potential international opportunity

  • Nomura Instinet raises its rating for Domino's Pizza shares to buy from neutral, citing the company's ability to expand in foreign markets.
  • Domino's shares are "relatively more attractive than they had been. ... [there] may be further opportunities for international franchisees to buy rival pizza chains and convert them to the Domino's brand name, which helps Domino's unit growth without corporate commitment of capital," the firm's analyst writes.
The Domino's Pizza company logo is displayed on the jacket of delivery driver in London, U.K., on February 27, 2017.
Jason Alden | Bloomberg | Getty Images
The Domino's Pizza company logo is displayed on the jacket of delivery driver in London, U.K., on February 27, 2017.

Domino's Pizza shares have bottomed out, according to one Wall Street firm.

Nomura Instinet raised its rating for the pizza restaurant chain to buy from neutral, citing the company's opportunity to expand in foreign markets.

The former high-flying stock started declining after it reported weaker-than-expected second-quarter international same-store sales results in late July. Domino's stock is 22 percent off its 52-week high, reached in late June.

Domino's shares are "relatively more attractive than they had been. ... [there] may be further opportunities for international franchisees to buy rival pizza chains and convert them to the Domino's brand name, which helps Domino's unit growth without corporate commitment of capital," analyst Mark Kalinowski wrote in a note to clients Wednesday.

"As Domino's continues to grow, we believe that this is placing more competitive pressure on local and regional international pizza chains. These chains simply lack the scale and resources to effectively compete with Domino's as digital ordering has become increasingly important to customers ordering pizza for delivery (or takeout)," he wrote.

The company's stock has underperformed the market this year. It is up 8 percent year to date through Tuesday compared with the S&P 500's 17 percent gain.

The analyst reaffirmed his $201 price target for Domino's Pizza shares, representing 17 percent upside to Tuesday's close.

Kalinowski said Domino's stock is valued attractively compared with its industry's peers given its future prospects. He noted the company trades at an enterprise value of 16.9 times his 2018 earnings before interest, tax, depreciation and amortization estimate versus Yum! Brands 17.7 times.

"Domino's trades at a discount using this valuation metric, even though the company offers up meaningfully better worldwide unit growth and the likelihood of better same-store sales growth than YUM," he wrote.

— CNBC's Michael Bloom contributed to this story.