Investment Conclusion
Dunkin Brands' (DNKN), although also comprised of Baskin Robbins, derives a majority of its profits from the company's Dunkin' business. Although, the folklore is that Dunkin' is simply a cheaper version of Starbucks (SBUX), the argument is far from the truth. The two companies have entirely different business models. Unlike SBUX, Dunkin' does not promote itself as a third place, proffer to be premium, or attach itself to social contexts. Comparatively, Dunkin' is a low key chain of coffee shops where customers can get their beverage and baked good at a swift pace and at an affordable price. Dunkin's business progress is similarly straight forward with little on the horizon to hold the company back. Overall, on a five year basis, Dunkin's business has experienced significant improvement, driven by slow but steady gains year after year on every financial metric, whether it is retail sales, same store sales growth, revenues, or earnings per share. Looking ahead, we expect Dunkin' to sustain and accelerate its growth as the business gathers additional momentum due to geographic expansion and increase in same store sales. Based on our favorable outlook on Dunkin', we expect DNKN to experience considerable growth in revenues, earnings, and free cash flows over the longer term. Driven by our 5-year Discounted Cash Flow (DCF) analysis, we arrive at a Buy Rating and a Price Target of $83/share for DNKN.
Investment Thesis
DNKN is the parent company of Dunkin' and Baskin Robbins. The firm has no company operated stores and 100% of Dunkin' and Baskin Robbins restaurants are operated by franchisees. Overall, at YE2019, DNKN had 21,297 stores, 13,137 Dunkin' stores (9,630 in the U.S. and 3,507 in foreign countries) and 8,160 Baskin Robbins stores (2,524 in the U.S. and 5,636 in international regions). In FY2019, DNKN generated: ~$12.2 billion in retail sales reflecting a growth of 4.6% over 2018, ~$1.4 billion in revenues representing an increase of
