Dunkin’ Brands: Why Did The Stock Double In 3.5 Years?

Dunkin’ Brands’ (NASDAQ:DNKN) stock price has increased more than 2x from $39.40/share in January 2016 to $80.90/share in August 2019. The increase was primarily driven by a continuous increase in Total Revenue, continuous buyback, and better P/E multiple. Revenue growth is expected to continue in 2019. A positive outlook has driven a rise in the company’s price-to-sales (P/S) and price-to-earnings (P/E) multiples.

You can view the Trefis interactive dashboard – Why Dunkin’ Brands Stock Climbed 2x since Jan. 2016? In addition, here is more Consumer Discretionary data.

Dunkin’ Brands Revenue saw a steady growth with Dunkin’ Donuts US as the primary growth driver

• In the last 3 years Dunkin’ Brands’ revenue has risen from $1.25 billion in 2016 to $1.32 billion in 2018. Trefis estimates the growth to continue and revenue to reach $1.38 billion in 2019.
• Dunkin’ Donuts US revenues went down from $607.9 million to $606.8 million in 2018 due to a change in the presentation of financial statements as revenue. The growth is fueled by a continuous increase in the number of outlets over the years from average outlets at 8,629 in 2016 to 9,280 in 2018. In 2019 Trefis estimates revenue at $643.9 million and average outlets at 9,569.

Profitability Margin to be nearly flat

• Net Income Margin saw a rise in 2017 primarily due to the net tax benefit accrued with the Tax Cuts and Jobs Act. In 2019 we estimate Net Income to be around 16.5% of Total Revenue.
• Direct Expenses as % of Revenues has fluctuating over the years. It increased to 65.7% in 2018 but is expected to decline down to around 63.9% in 2019.
• Finance costs as % of Revenues increased in 2018 to around 9.7%. Trefis estimates it to increase slightly at around 9.8% in 2019.
• In 2017 we saw a negative tax rate due to the net tax benefit accrued as the Tax Cuts and Jobs Act. Further, in 2018 the statutory tax rate went down. Trefis estimates the effective tax rate to remain nearly flat in 2019.
• In 2018 capex as % of Total revenues increased to 3.9% and Trefis estimates it to slightly fall to around 3.5% in 2019.

Higher Multiple?

• DNKN’s P/S multiple has fallen from 6.1x in Dec. 2016 to 5x in Aug. 2019 while its P/E multiple has increased from 19.1x in Dec. 2016 to 29.2x in Aug. 2019.
• The company’s global peers such as McDonald’s and Yum Brands have seen their multiples grow in the last few years. While Starbucks’ P/S multiple had fallen from 3.9x in Dec. 2016 to 3.6x in Dec. 2018 before its rise back to 4.6x in Aug. 2019, while its P/E multiple fell from 29.9x in Dec. 2016 to 19.8x in Dec. 2018 before rising back to 33.7x in Aug. 2019.
• McDonald’s has seen its P/S multiple rise from 4.4x in Dec. 2016 to 8.1x in Aug. 2019, while its P/E multiple has risen from 23.2x in Dec. 2016 to 28.5x in Aug. 2019.
• Yum Brands has seen its P/S multiple rise from 4x in Dec. 2016 to 6.7x in Aug. 2019, while its P/E multiple has risen from 16.3x in Dec. 2016 to 27.8x in Aug. 2019.
• As of August 2019, Dunkin Brands commands a higher P/E multiple compared to its major peers except Starbucks, while its P/S multiple as of Aug. 2019 is third behind Yum brands and McDonald’s.

Trefis expects a higher multiple and a positive outlook to bode well for DNKN’s stock and fundamentals. As per Dunkin’ Brands Valuation by Trefis, we have a price estimate of $74 per share for DNKN’s stock.

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