Dunkin Brands Group Inc (DNKN) – Forget Starbucks Corporation (SBUX): This Coffee Stock Is Better

Although the Dunkin’ Donuts brand has been around since 1950, Dunkin Brands Group Inc (NASDAQ:DNKN) is relatively young as a public company. In 2006, a group of private equity firms purchased the company, and an initial public offering followed in 2011.

In the second quarter, earnings per share (EPS) rocketed 24% higher from the same period a year earlier, and revenue rose by nearly 6%. Perhaps more importantly, domestic same-store sales increased 4% for Dunkin’ Donuts and 2.6% for Baskin-Robbins during the same time.

This is a powerful tell on the future direction of the company. It shows that consumers are willing to purchase more products at a higher price point, which will drive the bottom line higher.

The company also recently initiated a dividend. Although nothing spectacular, the dividend is currently yielding 1.8% and was increased from last year, which may be the start of regular annual increases. Another positive move is Dunkin Brands Group Inc (NASDAQ:DNKN) repurchase of 400,000 shares of common stock; management has another $33 million available for additional buybacks.

Risks to Consider: The gourmet coffee craze may not last forever. Consumers are fickle, and tastes change. There is also fierce competition in the space with even the fast-food giant McDonald’s vying for a piece of the action. Always use stops and position size properly when investing.

Action to Take –> Price has pulled back to the 50-day simple moving average setting up a strong value buy zone opportunity. Buying now in the $43 range with stops at $42 and a 12-month target of $48 makes solid investment sense.

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