DNKN Market Research & Analysis Report
Updated Jul 29, 2014

Growth and Balance Sheet

The company reported net income of $46.2 million, or 43 cents diluted earnings per share, for the second quarter of 2014 ending June 28. That's up from a net income of $40.8 million, or 38 cents diluted earnings per share for the same quarter last year. Revenues for the second quarter were $190.9 million, up from $182.5 million for the same quarter last year. Company’s segments reported mixed revenue growth results in comparison to the same quarter last year. Dunkin Donuts US segment revenue was 6% to $136 million, with comparable store sales growth of 1.8%, primarily due to increased royalty income; Dunkin Donuts International segment revenue was up 15% to $4.52 million, with comparable store sales decline of 3.1%; Baskin-Robbins US segment revenue was up 3.7% to $12.9 million, with comparable store sales growth of 4.2%, primarily due to increased royalty income; and Baskin-Robbins International segment revenue was down by 3.7% to $33.6 million, with comparable store sales decline of 1.6%. The company added 151 net new restaurants worldwide, including 75 net new locations in US. Operating profit margin for the quarter was 45.86% up from 42.08%, primarily due to increased revenue and gain on the sale of all company-owned restaurants in the Atlanta market. Net cash provided by operating activities for the first 6 months of 2014 was $685 thousands, compared to net cash used in operating activities of $6.8 million for the same period last year. DNKN forecasted third quarter of 2014 EPS are in the range of 46 cents to 50 cents, compared to actual EPS of 37 cents for the third quarter of 2013. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio of 1.31 is same as the industry average. The interest coverage ratio of 4.35 is at worse levels than the industry average of 285.68, however, it is still at heathy levels. In terms of efficiency, the asset turnover ratio of 0.24 is worse than the industry average of 1.41; the receivables turnover ratio of 13.10 is lagging behind to the industry average of 111.72; and the ROE of 42.12% is much better than the industry average of 12.63%. 

Valuation

DNKN PE stands at 30.59 above the industry average of 27. 6, and above the stock market average represented by the S&P 500 average of 19.51. The company is currently trading above the maximum P/E ratio of 15x, and over the last three years, the company’s shares have traded in the range of 30.05x to 46.26x trailing 12-month earnings. DNKN's current Price/Sales of 6.04 is above the average of its industry of 1.79. DNKN’s head to head comparison to its main competitors shows that the company has the highest gross margin, and one that is well above the industry average. Also the operating margin is much higher when compared to the selected competitors’ achieved margins, and more than 5 times the industry average. The quarterly revenue growth of the company is the worst result from the selected peers achieved revenue growth rates for the quarter, and it is below the industry average. DNKN trades at comparable P/E ratio with YUM, but much below SBUX at the moment. The P/S ratio of the company is much higher than the selected competitors. DNKN’s twelve trailing months EBITDA is $345.56 million, lower than all of the competitors achieved EBITDAs, but above the industry average EBITDA of $56.02 million. The stock is currently trading below intrinsic value of $59.69, this suggests that the stock is currently undervalued at these levels. The beta of 0.52 implies lower volatility of the stock with respect to the S&P 500. DNKN has shown favorable earnings consistency over the last three years. The current quarter earnings in comparison to the same quarter last year have increased by 13.16%. DNKN’s Total Debt/Equity of 496.64 is above the required maximum, and it is above the industry average of 56.17. DNKN’s current price levels are above the maximum level, 19.38% below the 52 week high of $53.05, and the technical analysis give neutral to negative view of the stock. The majority of the analyst ratings are hold. DNKN has a dividend payout ratio of 59% and a trailing annual dividend yield of 1.10%. 

About DNKN

With more than 18,000 points of distribution in nearly 60 countries worldwide, Dunkin' Brands Group, Inc. (Nasdaq: DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of fiscal 2013,  Dunkin' Brands nearly 100 percent franchised business model included nearly 11,000 Dunkin' Donuts restaurants and 7,300 Baskin-Robbins restaurants, which are primarily owned and operated by approximately 2,000 franchisees, licensees and joint venture partners. For the full-year 2013, the Company had franchisee-reported sales of approximately $9.3 billion.  Dunkin' Brands Group, Inc. is headquartered in Canton, Mass.

Competitor Comparison

Dunkin' Brands Group, Inc. (NYSE: DNKN) N.V.

Highlights

Dunkin' Brands Group, Inc., together with its subsidiaries, owns, operates, and franchises quick service restaurants under the Dunkin’ Donuts and Baskin-Robbins brands worldwide. The stock closed yesterday’s trading session at $42.77. In the past year, the stock has hit a 52-week low of $40.50 and 52-week high of $53.05. The intrinsic value of the stock is above the current price. DNKN has a market cap of $4.49 billion and is part of the Services sector.   

• Strong brand name, recognized worldwide    
• Effective marketing campaign and association with major sports teams
• Over 1000 varieties of doughnuts

• No real presence in emerging markets
• Strong competition, hindering growth    

DNKN Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. DNKN's 52 week high is $53.05, current price is $42.77, is 19.38% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.  The company has a P/E ratio of 30.59 the average industry P/E ratio is 27.6 and is above the S&P 500 P/E ratio of 19.51.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 5.53 % of DNKN stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

DNKN is trading in the range of $40.50 - $46.55 in the past 30 days. The stock has been showing support around the level of $42 and resistance in the $52 range. The stock is trading below the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 31.12. After spending the whole 2013 and the first 3 months of 2014 in a bullish trend, the stock has been plummeting since late March. Until last week the stock was finding support around $44, but it gapped down to $42 on July 24. Our indicators give a neutral to negative view of DNKN.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 7 Buy, 4 Outperform, 10 Hold, and 1 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. DNKN’s annual EPS for the last 3 years were -1.41, 0.93, and 1.36 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. DNKN’s Total Debt/Equity of 496.64 is above the required maximum, and it is above the industry average of 56.17.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. DNKN’s EPS growth for this quarter relative to the same quarter a year earlier is 13.16%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. DNKN’s annual earnings growth rate over the past five years is not meaningful.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.