Summary
- Dunkin' Brands has shown very encouraging growth and profitability results in 2019.
- The company is set to keep growing internationally and has shown it can adapt to a changing market.
- Given the EPS expectations for 2020, our target price for Dunkin' is around $90.
Thesis Summary
Dunkin' Brands Group Inc. (DNKN) operates franchises worldwide under the Dunkin' Brand. Since going public in 2011, the stock has produced good returns for customers both in the form of dividends and capital appreciation. However, many investors have now pointed out that the company seems overvalued.
Our analysis, based on recent performance, valuation metrics, and growth catalysts lead us to believe the stock still has room to grow in 2020, and we have set a target price of $90.
Company Overview
Dunkin' together with its subsidiaries develops, franchises, and licenses quick-service restaurants worldwide. The company operates through five segments: Dunkin' U.S., Dunkin' International, Baskin-Robbins International, Baskin-Robbins U.S., and U.S. Advertising Funds.
The Dunkin' restaurants serve hot and cold coffee, baked goods, and hard serve ice cream. The company also offers packaged coffee.
As of March 30, 2019, the company boasted 12,900 Dunkin' Donuts restaurants and 8,000 Baskin-Robbins restaurants. The company franchises its restaurants under the Dunkin' Donuts and Baskin-Robbins brands. Dunkin' Brands Group, Inc. is headquartered in Canton, Massachusetts.
The company operates internationally but receives most of its revenues domestically, here we can see a breakdown from the Q3 investor presentation.
Source: Q3 investor presentation
Recent performance and price action
Dunkin' has achieved a substantial price appreciation in 2019. The price in January was around $60 and currently, sits at around $75. This change in valuation can be attributed to a couple of factors. Firstly, Dunkin' has presented positive growth and profit reports throughout the last 12 months. The last quarter has been no exception.
Source: Q3 investor presentation
Since 2017, the company has increased its revenue from $1.2 billion in 2016 to just over $1.3 billion as of writing this.
It is undeniable that the company has offered investors plenty of returns both in the form of dividends and price appreciation, which have also been aided be substantial buybacks. However, with the stock currently trading at above industry average P/E, is the company still a buy?
