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Einstein Noah Restaurant Group, Inc. (BAGL), Dunkin Brands Group Inc (DNKN): Your Quick Stop in the Morning Should Be in Your Portfolio

Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)Every morning millions of Americans make their daily commute to work, and along the way many make a quick coffee or breakfast stop. Some grab coffee, while others grab a bagel, donut or sandwich for the day. The daily routine aspect is what drives the top and bottom lines for these quick-serve spots. Now that the economy has recovered and employment is on the rise, more Americans can now afford to make that quick stop in the morning and spend a couple of dollars.

Everyone’s favorite bagel place

Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) is the nation’s largest operator of bagel bakeries. Its stores include Einstein Bros. Bagels, Noah’s New York Bagels, and Manhattan Bagel. The stores offer fresh-baked goods, made-to-order sandwiches, gourmet salads and coffee. Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) has approximately 800 locations in 40 states and the District of Columbia. The company also has a dough production facility.

The focus at Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) is to become more than just a bagel shop. The company just announced its everyday value menu for breakfast and lunch. Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) wants to get more revenues out of its existing store base and I think that’s a good focus for the company. By expanding its menu, it gives its customers more to choose from and gets new customers into the door. Besides sandwiches, Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) is also adding specialty beverages such as frozen strawberry lemonades and strawberry banana smoothies. Specialty beverages have helped other restaurant chains such as McDonald’s Corporation (NYSE:MCD) and Sonic Foundry Inc (NASDAQ:SOFO). With revenues averaging only $500,000, there’s a lot more Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) can do to increase revenues per store.

Einstein Noah will also benefit as it moves to more of a franchising model. Only about 10% of Einstein Noah’s locations are franchised. The franchise model allows the company to collect upfront fees and get a percentage of sales. The franchise model also allows for further expansion internationally and into the ten states that currently don’t have a location.

In looking at the stock, billionaire hedge fund manager David Einhorn’s Greenlight Capital is the largest shareholder with a 62% stake. The company trades at a forward P/E of 16 and pays an annual dividend of $0.50 per share for a yield of 3.1%. I think a catalyst going forward is Greenlight Capital looking to create shareholder value either through increased dividends or a sale of the company.

Everyone’s favorite donut spot

Dunkin Brands Group Inc (NASDAQ:DNKN) is best-known for its 10,500 Dunkin Donuts and 7,000 Baskin-Robbins locations worldwide. While Dunkin’ Donuts sells donuts, many stop there for their coffee. Some even prefer its coffee over Starbucks Corporation (NASDAQ:SBUX). The business model is 100% franchised and last year the franchisees reported total sales of $8.8 billion.

Dunkin Brands Group Inc (NASDAQ:DNKN) has a great business with its asset-light franchise model. There’s tremendous growth for the company still in the U.S. Consider that there is not a Dunkin’ Donuts location in Southern California. The first one to open won’t be until 2015. Even without being in Southern California, Dunkin Brands Group Inc (NASDAQ:DNKN)’ opened 291 locations in the U.S. last year and will open 330 to 360 net new restaurants in 2013.

Dunkin Brands Group Inc (NASDAQ:DNKN) will also benefit from expanding its menu items. For one, the company is now selling Dunkin’ Donuts K-Cups at its Baskin-Robbins locations. Second, Dunkin’ Donuts is expanding the locations that have a breakfast menu. Most locations internationally don’t offer breakfast sandwiches. Dunkin’ Donuts is working to change that.

In looking at the stock, Dunkin Brands Group Inc (NASDAQ:DNKN) trades at a forward P/E of 23. This is not bad considering the company’s growth prospects. The major concern that investors have about Dunkin’ is the $1.84 billion in total debt. The company has an asset-light business model and generated almost $149 million in free cash flow last year to service the debt. The company is able to pay its debt and also pay an annual dividend of $0.76 for a yield of 1.7%. The payout ratio is 68% and the company has been increasing the dividend.

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