With shares of Dunkin' Brands Group (NASDAQ:DNKN) trading at around $40.06, is DNKN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
There are many important points to cover for Dunkin', but let's first take a look at what Dunkin' Donuts has to offer in regards to food and beverage. This has the potential to serve two purposes, which are to inform investors of what they might be investing in, and to inform all readers what they might be eating or drinking in the near future.
Even if you frequent Dunkin' Donuts, it's not likely that you know the entire menu. Most people walk into Dunkin' Donuts knowing exactly what they want. This has a lot to do with either a slight caffeine addiction (don't worry, that's perfectly normal) or a craving for a donut or ice cream. Okay, so let's get to it.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Breakfast Sandwiches
Bacon Egg & Cheese
Big N' Toasted
Egg White Flatbreads
Egg & Cheese
Glazed Donut Breakfast Sandwich
Ham Egg & Cheese
Sausage Egg & Cheese
Turkey Sausage Breakfast Sandwich
Wake-Up Wrap
Bakery Sandwiches
Chicken Salad Sandwich
Chicken Sandwiches
Ham & Cheese
Texas Toast Grilled Cheese
Tuna Salad & Chicken Salad Wraps
Tuna Salas Sandwiches
Turkey, Cheddar & Bacon
Bakery
Bagels and Bagel Twists
Cookies
Danishes
Donuts
Hash Browns
Muffins
Munchkins (so underrated)
Hot Beverages
Beverage Flavors
Box O' Joe
Cappuccino
Dunkaccino
Espresso
Hot Chocolate
Hot Coffee
Hot Tea
Latte
Mint Hot Chocolate
Vanilla Chai
Iced Beverages
Beverage Flavors
Iced Coffee
Iced Latte
Iced Sweet Tea
Iced Tea
Frozen Beverages
Berry Blast Coolatta
Blue Raspberry Coolatta
Frozen Caramel Coffee Coolatta
Frozen Coffee Coolatta
Frozen Mocha Coffee Coolatta
Hot Chocolate Coolatta
Minute Maid Orange Coolatta
Raspberry Lime Coolatta
Strawberry Coolatta
Vanilla Bean Coolatta
At Home Brewing
K-Cup Packs
Packaged Coffee
Packaged Tea
There has to be something on that list that you will enjoy! That, in turn, is the point. Dunkin' is very good at attracting new customers that then become loyal to the brand. Dunkin' is also looking to penetrate west of the Mississippi River. If successful, it could lead to substantial growth opportunities. Management is also aiming to add between 300 and 600 units in the United States this year alone. Companies that are opening stores/restaurants are often highly confident in their future prospects. It should also be noted that this is in an environment where most companies are closing stores/restaurants, or at least cutting costs in a massive way. All that said, this growth comes at a cost. Dunkin' does have some substantial debt concerns. On the other hand, management has been making strategic moves to better manage the debt.
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The ultimate concern here is that Dunkin' suddenly finds itself in a weaker economic environment where the stock market suffers a steep correction and interest rates increase. However, this has been a concern for a long time, and while the concern is justifiable, it never becomes a reality. It's possible that savvy investors are simply mistiming the market and underestimating the power of the current upward momentum in the market.
The chart below shows some basic fundamentals for Dunkin' Brands, Starbucks Corporation (NASDAQ:SBUX), and McDonald's Corp. (NYSE:MCD). Some readers might wonder why Krispy Kreme Doughnuts (NYSE:KKD) isn't on the list, but as Krispy Kreme CEO James Morgan admits, Dunkin' Brands and Starbucks are largely beverage companies whereas Krispy Kreme is more focused on doughnuts.
| DNKN | SBUX | MCD | |
| Trailing P/E | 42.75 | 32.25 | 18.17 |
| Forward P/E | 22.13 | 24.13 | 15.70 |
| Profit Margin | 15.90% | 10.80% | 19.79% |
| ROE | 19.24% | 28.97% | 36.59% |
| Operating Cash Flow | 139.86M | 2.55B | 7.02B |
| Dividend Yield | 1.90% | 1.30% | 3.20% |
| Short Position | 7.80% | 1.30% | 1.00% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Dunkin’ has performed well over the past year as well as year-to-date, but momentum has slowed. Does this present a buying opportunity, or should it act as a warning sign?
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| DNKN | -0.11% | 21.87% | 30.56% | 1.11% |
| SBUX | 5.42% | 19.14% | 23.51% | 150.0% |
| MCD | -3.28% | 12.81% | 16.71% | 58.54% |
At $40.06, Dunkin’ is trading above its averages.
| 50-Day SMA | 39.85 |
| 200-Day SMA | 36.24 |
E = Equity to Debt Ratio Is Weak
The debt-to-equity ratio for Dunkin’ is much weaker than the industry average of 0.90. In the current economic environment, it’s possible to get away with using a lot of leverage to fuel growth. However, there will eventually be a price to pay.
| Debt-To-Equity | Cash | Long-Term Debt | |
| DNKN | 5.32 | 179.19M | 1.84B |
| SBUX | 0.10 | 1.70B | 549.60M |
| MCD | 0.84 | 1.87B | 12.80B |
E = Earnings Have Been Steady
Earnings and revenue have consistently improved on an annual basis.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 538 | 577 | 628 | 658 |
| Diluted EPS ($) | NA | 0.28 | 0.32 | 0.93 |
Looking at the last quarter on a year-over-year basis, revenue and earnings improved. Both revenue and earnings have been consistent without being overly impressive on a sequential basis.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 152.37 | 172.39 | 171.72 | 161.70 | 161.86 |
| Diluted EPS ($) | 0.21 | 0.15 | 0.26 | 0.32 | 0.22 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry
The cost of coffee has decreased 24 percent over the past year, which has helped the industry a great deal. Coffee prices are off their lows, but they're not expected to shoot higher unless there is a major weather event that significantly impacts commodity prices.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Conclusion
Dunkin’ has a strong brand, and it's likely to become stronger in the coming years. Annual revenue and EPS growth have been steady, and margins are impressive. On the other hand, Dunkin' is currently trading at 43 times earnings. Therefore, there isn't much margin for error. Furthermore, stock performance has been subpar over the past month and debt management is still a concern.
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