by Mark Skousen, editor Hot Commodities AlertDunkin' Brand Group (
DNKN),
which owns Dunkin' Donuts, is much smaller than Starbucks in terms of
revenues and employment. In comparison, Starbucks has $12.6 billion in
revenues!
But Dunkin' Brand has much more room to expand its
franchises, especially out West and in foreign countries. It just opened
up its first store in California. It's about 10 years behind Starbucks.
The company plans to double the number of its Dunkin' Donuts stores in
the United States to 15,000 in the next 20 years. I think it will become
the "go-to" choice for coffee, donuts, and even quasi-healthy fast
food.
Dunkin' Donuts now is offering breakfast foods, such as
the sausage, egg and cheese on an "everything" bagel. And the coffee is
highly drinkable, relatively inexpensive and attitude-free.
The company also owns also owns Baskin-Robbins' ice cream stores. These
stores are a bit of a drag on financial performance and the parent
company is closing some of the stores. But it is expanding
Baskin-Robbins' franchises in Vietnam, Mexico and the United Kingdom.
With
profit margins around 10%, Dunkin' Brand Group earned $62 million on
revenues of $641 million in the past 12 months. DNKN also has a return
on equity (ROE) of 12%.
The current price-earnings ratio appears
high (64) but that ratio reflects several one-time expenses last year
and does not indicate true value.
These one-time expenses
included a loss on the repayment of debt, costs related to secondary
offerings, impairment charges related to a South Korea joint venture,
and a sponsor termination fee.
The forward PE is estimated to be almost 28, which is not cheap but is nowhere near overvalued.
In
addition, the money raised from the company's IPO last year was used to
retire long-term debt. As a result, the company now has a much better
cash flow.
Overall, I see a bright future for Dunkin' Brand. Let's buy it and set a protective stop of $28 a share here.