Starbucks Corporation (SBUX), Dunkin Brands Group Inc (DNKN): Coffee and Donuts Are Treats for Investors

The coffee shop retail sector continues to brew and this is good news for coffee drinkers and investors who like to nibble on tasty treats.

A small taste of heavenly coffees

Specialty coffee maker Starbucks Corporation (NASDAQ:SBUX) and the old reliable Dunkin Brands Group Inc (NASDAQ:DNKN) continue to be beanery leaders.

Starbucks Corporation (NASDAQ:SBUX)

These coffee chains appeal to different customer bases. Starbucks Corporation (NASDAQ:SBUX) and similar retail chains are the favorite of consumers who believe they are more hip about flavored lattes. On the other hand Dunkin Donuts is preferred by those who enjoy the simple pleasure of a reliable cup of brew while dunkin’ donuts. However, Dunkin Brands Group Inc (NASDAQ:DNKN) has broadened its brand by offering a wider variety of lattes and snacks to compete with the specialty chains. Of course, arguments over taste are no arguments at all – some will argue the specialty lattes taste like burnt offerings.

In any case coffee consumption is on the rise. According to the National Coffee Association, a recent survey found many of the adult population worldwide drinks coffee – about 109 million people. And 52 million of these folks live in America. In other words, they got an awful lot of coffee in Brazil, as the song goes and in lots of other places too.

Starbucks serves lattes muchos and ethics too

Starbucks Corporation (NASDAQ:SBUX)Starbucks Corporation (NASDAQ:SBUX) sells its java, snacks, and merchandise in 60 countries which gives the outfit a much broader base than Dunkin Brands Group Inc (NASDAQ:DNKN). And the company’s long standing logo of a Mermaid on each cup was replaced last year. So hold onto those older mugs – they could be a hot item on EBay in the fullness of time.

Meanwhile the coffee house of the global village has long made a connection between profits and its societal role. Not only has Starbucks Corporation (NASDAQ:SBUX) gained market share because of tasty lattes, the company provides all employees with health insurance. The coffee chain has also worked with environmental groups to buy coffee beans from small South American and Indonesian farmers above market rates.

On the numbers side of the beanery equation, the company expects full-year earnings in 2013 of $2.12 to $2.18 a share – higher than its earlier forecast of $2.06 to $2.15 a share. The current share price is closing in on $66/share just short of the 52 week high by a buck and change, so tip the baristas.

How much higher the price will go depends on factors like advancing its “ready to drink” brew into the US retail sector. The company also has bold plans to expand into the green tea land of China via the ready to drink line.

Dunkin Brands broadens its horizons

Since Dunkin Brands Group Inc (NASDAQ:DNKN)’s initial public offering in July 2011, they’ve been busy not only making donuts but also expanding the brand beyond the northeast. In fact, the coffee brewer has been opening new franchises across the U.S. The franchise model has historically served the outfit well since it enables quick expansion without the usual start-up costs. In fact, by the end of last year there were more than 10,500 Dunkin Donuts shops.

Dunkin Brands Group Inc (NASDAQ:DNKN) recently announced the opening of nine new shops this year in the Houston area. And the outfit sold this play to potential franchise entrepreneurs looking to get into the coffee game in Texas. And this is good news not only for those who like to dunk donuts, but investors who hope to profit from the caffeine buzz.

As a matter of fact, some analysts expect the company to earn $1.53 per share in 2013. And the expectations for next year are higher – $1.81 per share. This means an earnings growth rate of a bit less than 20% – a hill of coffee beans. Finally, Dunkin Brands – which includes more than 7,500 Baskin Robbins ice cream stores – also pays a dividend of 1.8%. In the final taste test, this gives investors a chance to drink from the cup of a company on the rise again.

Krispy Kreme still fills the dough

Some folks consider the treats baked by Krispy Kreme Doughnuts (NYSE:KKD) to be an indulgence par excellence.

But many will also be surprised to learn the company first started baking back in 1937 in Winston-Salem, NC. The outfit went public in 2000, and has had its ups and downs since then. However, the company is on the rise again. And CEO Jim Morgan recently pronounced that Krispy Kreme Doughnuts (NYSE:KKD) is no longer in a turn around.

The krispy kids have bold plans to expand by not only offering a new line of treats, but breaking into the beverage side of the business as well. This might pose a challenge to Starbucks Corporation (NASDAQ:SBUX) and Dunkin Donuts as well as the waist lines of its doughnut dunkers. Moreover, this will also serve investors’ wallets well. In fact, recent earnings reports show a quarterly revenue increase of 11% and same-store sales increase of 11.4% – 18 consecutive quarters of same-store sales growth.

The last drop

The boom of the coffee chain sector is not a flash in the pan and this is evidenced not only by the demand for good coffee and tasty treats, but also by the business models of all these houses of delight. And if the economic recovery kicks in along with the caffeine, consumers and investors should enjoy the ride.

The article Coffee and Donuts Are Treats for Investors originally appeared on Fool.com and is written by Kyle Colona.

Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Kyle is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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