How Does Dunkin' Brands Stack Up To The Coffee Industry?

| About: Dunkin' Brands (DNKN)

Last year, Dunkin' Brands Group (NASDAQ:DNKN) went public in a highly followed IPO. After a shaky start, shares are up 16.8 percent since the IPO and are up over 30 percent in 2012. This increase stems from an improved outlook over the past few months along with a very bullish coffee industry. In this article, I explain why the company is a good buy going forward.

Dunkin' Brands has had some very impressive performance over the last few years. Going from an unprofitable year in 2008, the company reported an adjusted earnings per share of $0.94 in 2011. Going forward, analysts expect strong results from Dunkin' Brands. The company is expected to report EPS of $1.24 in 2012, and $1.45 in 2013.

You may be wondering, how is Dunkin' Brands going to grow so much if it's already a mature company? The company, which consists of Dunkin' Donuts and Baskin-Robbins, already has very reputable brands with a large retail footprint. The expected high growth stems from several places.

First, locations are still being added at a pretty fast rate. Dunkin' Brands reported 10,121 "points of distribution" for Dunkin' Donuts and 6,755 "points of distribution" for Baskin-Robbins in its most recent quarterly report. The company expects to open about 600 more points of distribution in all of 2012. In addition, same-store sales are up 7.2 percent for Dunkin' Donuts and 9.4 percent for Baskin Robbins. Most quick service food chains have been reporting same-store sales increases between 4 percent and 6 percent.

Second, Dunkin' Brands should continue to push for home brewing. Dunkin' Donuts is a leader in brand loyalty and there is a lot of growth potential in that space. In addition, home brewing should not cannibalize revenue because the recent Keurig home brewing craze did not seem to affect same-store sales.

Right now, I value Dunkin' Brands Group around $36. I believe it is a good buy now in an overall bullish coffee market. Starbucks (NASDAQ:SBUX) has had some great performance over the last year and a half and Green Mountain Coffee Roasters (NASDAQ:GMCR) has done very well on the whole over the past couple of years despite a bubble burst in 2011. The company should continue to expand its product lines, grow its revenue and strongly improve its profitability.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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