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On Monday, UBS analyst Amit Sachdeva downgraded Jubilant Foodworks Ltd (NSE:JUBI:IN), the company known for operating Domino’s Pizza (NYSE:DPZ) and Popeyes in India, from Buy to Sell. The new price target set by UBS is INR600.00, a slight decrease from the previous target of INR615.00.
Sachdeva noted that Jubilant Foodworks has been a contrarian cycle play within their coverage. The company’s stock has seen a significant rise of approximately 60% over the past year despite a negative earnings cycle. However, with same-store sales growth (SSSG) turning positive, Sachdeva anticipates that the company’s valuation multiple will normalize, which may not align with the operating performance cycle.
The downgrade comes despite Jubilant’s successful execution and shift towards value. Sachdeva pointed out that once the current high like-for-like store revenue growth, which is at 12%, is accounted for in the base figures, it is expected to taper off to mid-single digits at best.
Moreover, even with optimistic assumptions for SSSG, margins, and network expansion, UBS estimates that Domino’s Pizza’s worth is only between INR400-500 per share under various scenarios. While the analyst acknowledges that Popeyes has potential for meaningful value addition, it still needs to demonstrate favorable store economics and respectable revenue numbers. UBS estimates Popeyes’ worth at about INR70-100 per share.
In conclusion, UBS sees limited potential for upside in Jubilant Foodworks’ stock from its current levels, leading to the downgrade in rating and the reduction in price target.
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