Domino's Earnings: Store Growth Headwinds Drive Brutal but Unjustified Selloff, Shares Fairly Priced

Our key takeaways from wide-moat Domino's second-quarter earnings are that the firm's US business is performing well despite a challenging backdrop and that long-term investors have a more attractive entry point after a brutal selloff (shares are down 12%-13% during July 18 trading). The market reaction appears to be tied to Domino's temporary suspension of its 1,100-plus net store growth target, which looks overstated to us, with pressure predominately tied to overexpansion in two isolated markets (Japan and France) that investors should not extrapolate into structurally worse long-term development prospects. We don't expect to change our $425 fair value estimate, with lower near-term international store growth prospects offsetting a stronger-than-expected US outlook and time value.