The last time I wrote about Dunkin' Brands (NASDAQ:DNKN) I bought a small position in it stating with that I thought I could get it at a lower price, but that never came to fruition. Since my last article it actually shot up 8.63% versus the 4.42% gain the S&P500 (NYSEARCA:SPY) posted. Dunkin' Brands Group is a franchiser of quick service restaurants serving hot and cold coffee and baked goods, as well as hard serve ice cream in the form of Dunkin' Donuts and Baskin-Robbins, respectively. On October 24, 2013, the company reported third quarter earnings of $0.41 per share, which missed the consensus of analysts' estimates by $0.02. In the past year the company's stock is up 56.28% excluding dividends (up 57.69% including dividends), and is beating the S&P 500, which has gained 28.1% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 36.77, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 26.39 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.95), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 18.85%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 18.85%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 15.86%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.6% with a payout ratio of 59% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4.4%, 39% and 8.2%, respectively, which are all respectable values. The really high return on equity value (39%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. For comparison, Dunkin' has the third highest ROE out of 12 companies in the mid-cap restaurants industry. It is behind Brinker International (NYSE:EAT) which has a value of 85.9% and Bloomin' Brands (NASDAQ:BLMN) which has a value of 43.5%. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.6% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.
Payout TTM (%)
Looking first at the relative strength index chart (RSI) at the top, I see the stock near middle ground territory with a value of 51.92 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($47.43), I'm looking at $50.08 to act as resistance and the 50-day moving average (currently $46.01) to act as support for a risk/reward ratio, which plays out to be -3% to 5.59%.
- The company declared a quarterly dividend of $0.19 per share with an ex-date of 14Nov13 and pay date of 26Nov13.
- On 24Oct13 the company reported third quarter earnings of $0.41 per share on revenue of $186.3 million versus estimates of $0.43 per share and $182.94 million.
- The company reported that comp store sales grew by 4.2% in the third quarter for the flagship chain. During the quarter the company opened 222 net new shops including 81 in the U.S. while indicating strong growth in Germany and the Middle East came in at 1.4%
This stock never seems to pull back. Fundamentally, the stock is fairly valued on future earnings and growth, trades like any great growth stock does but next year's earnings estimates have been lowered. Financially, the returns on assets and equity have both increased from quarter to quarter which is an excellent sign that management knows what they are doing. Technically, I see bearish technicals written all over the stock. I really like the high growth prospects the company has to offer and would like to purchase the stock, but it is just exploding higher right now. Because the earnings estimates for next year have been lowered, the bearish technicals and the massive amount of capital expenditures take place as a result of the expansion process I will only add a small position in the stock right now because I think I can get it at a lower price. If I can get a decent sized pullback in the stock I will be all over it like sprinkles on a chocolate donut!
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!