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

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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!