Starbucks Corporation (SBUX), McDonald’s Corporation (MCD): America Runs on Dunkin Brands Group Inc (DNKN) and So Should Your Portfolio

Page 1 of 2

Value investors are constantly on the prowl for companies with huge growth potential, but it is not always easy finding one that is safe enough for a large investment. These plays are often made on speculation and carry smaller investments, which, in turn, makes for smaller capital gains. However, when you find a company with established brands, high earnings growth, and a dividend to boot, you have found a yourself an absolute goldmine. Dunkin Brands Group Inc (NASDAQ:DNKN)fits this description and has had a big run over the last year, but the earnings expectations predict this is only the beginning.

The brands

Dunkin Brands Group Inc (NASDAQ:DNKN) owns, operates, and franchises quick service restaurants under the Dunkin’ Donuts and Baskin-Robbins brands. Dunkin’ Donuts is the world’s largest coffee and baked goods restaurant and Baskin-Robbins is the world’s largest specialty ice cream chain. Being home to two of the world’s leading brands gives Dunkin Brands Group Inc (NASDAQ:DNKN) an edge in the industry.

Dunkin Brands Group Inc (NASDAQ:DNKN)

Last quarter

On July 25, Dunkin Brands Group Inc (NASDAQ:DNKN) reported second quarter earnings and the results were mixed, but impressive.

Reported Expected
EPS $0.41 $0.40
Revenue $182.49 million $183.09 million

Earnings per share and revenue rose 24.2% and 5.9% respectively, while quarterly profit soared to $40.8 million from just $18.5 year over year. The highlight of this report was the higher-than-expected domestic same-store sales; Dunkin’ Donuts increased 4% and Baskin-Robbin’s increased 2.6%. The increased sales were not from higher prices, but from a rise in the average ticket by its customers; this can be credited to the constant innovations driven by consumer demand.

The wild wild West

With more than 7,000 Dunkin’ Donuts locations in North America, shockingly there are zero in the western United States. Baskin-Robbins has been very successful in this area, but its sister brand never made its way over. However, this is set to change very soon. On July 25, Dunkin’ reported its deal with 4 franchise groups to open 45 restaurants in California in 2015, just weeks after the first deal for 18 restaurants was signed. California is only the beginning as Dunkin’ Brands has a long-term goal of having over 15,000 locations in the United States. This projected store count would more than double its domestic royalty income, cause a spike in franchise fees, and provide more capital toward marketing and adding company-owned locations. Expansion and innovation are two core characteristics of great companies.

Future expectations

In its second quarter report, Dunkin Brands Group Inc (NASDAQ:DNKN) projects earnings per share to be between $1.50-$1.53 in 2013, in line with analyst expectations. This growth is not expected to slow up anytime soon either. Take a look at the earnings projections, provided by TD Ameritrade, through 2015:

2013: 19.5% growth

2014: 19% growth

2015: 18.7% growth

According to Yahoo! Finance, the industry average price-to-earnings multiple of restaurants companies is 27.17. This means that if Dunkin’ Brands were to trade at the industry average multiple in 2015, the stock would surpass $58 per share. However, with expansion being ignited in the West in 2015, it has the potential to continue trading at its current multiple of 36; this would propel the stock well beyond $75 per share. Potential gains like these cause value investors to salivate.

Return to shareholders

Dunkin’ currently pays a $0.19 quarterly dividend, resulting in a yield of roughly 1.8% annually. It was increased from $0.15 in 2012, so there is a strong possibility for more raises in the future, as long as free cash flow continues to rise. Healthy dividends are hard to find in high-growth companies.

In the second quarter, Dunkin Brands Group Inc (NASDAQ:DNKN) repurchased approximately 400,000 shares of its common stock. There is another $33 million remaining for repurchases under previous buyback authorizations. By reducing the share count, earnings per share will increase, making the remaining shares more valuable.

Dividends and share repurchases are two of the most bullish moves a management team can make and both dramatically benefit shareholders. With management expecting $125 to $135 million in free cash flow for fiscal 2013, the dividend could be increased and another round of repurchases could be authorized.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!