Warren Buffett, renowned for his fondness for junk food, recently made an intriguing move by investing in a national pizza chain that’s currently going for a bargain, at least by this year’s standards. Under his leadership, Berkshire Hathaway scooped up over 1.2 million shares of Domino’s Pizza last quarter, valued at approximately $550 million, as revealed in a recent regulatory filing. While this is a relatively minor addition to Berkshire’s vast empire—especially when you consider their cash reserves exceed $300 billion—it’s likely the brainchild of his investment managers, Ted Weschler and Todd Combs. Regardless of who initiated the idea, Domino’s fits snugly into the portfolio of this sprawling Omaha-based giant, already famous for owning 100% of See’s Candies and Dairy Queen. Not to mention, Coca-Cola and Kraft Heinz, the parent company of Oscar Meyer hot dogs, are among their top equity positions.
Buffett, at 94, is well-known for his playful dietary preferences. He’s quipped about living off five cans of Coke and McDonald’s daily, yet it hasn’t impeded his health. “I eat like a 6-year-old,” he once joked. “I’m one quarter Coca-Cola,” he also famously shared. Back in 2014, Berkshire invested $3 billion in Restaurant Brands International, the proprietor of Burger King and Tim Hortons, and in the 1990s, they held a significant portion of McDonald’s.
This year, Domino’s Pizza shares haven’t quite kept pace with the S&P 500. However, their appeal aligns with Berkshire’s investment philosophy, prioritizing cash flow and fundamental valuation metrics like price-to-earnings and price-to-book-value. It’s possible they also capitalized on July’s significant sell-off, where Domino’s shares nosedived by 17%. In just one day, their stock plummeted over 13%—the steepest drop since 2008—after the chain announced it would miss sales forecasts and open fewer new international locations than planned. Consequently, Domino’s price-to-earnings ratio fell to an annual low of 23.7, based on FactSet findings.
The pizza chain is grappling with sluggish U.S. sales growth amid fierce competition for budget-conscious diners. Jeffrey Bernstein, a Barclays Capital analyst, commented on the scenario, noting, “Near-term fundamentals remain under pressure. Much like the ‘burger wars’ of the past, management perceives we’re now embroiled in ‘pizza wars’ with every player focused on added value.” Despite Berkshire’s backing giving Domino’s stock a boost, it’s only climbed around 10% this year, trailing the S&P 500’s 25% surge.
When Berkshire’s new stake was unveiled, there wasn’t much to add from Domino’s management, according to the Barclays analyst who recently spoke with them. “We don’t believe they chatted with Warren,” Bernstein mentioned to CNBC, implying Domino’s top brass likely faced inquiries from Berkshire before the stake was publicized.
