Dunkin' Brands Group: At Full Valuation

Dec. 14, 2020 6:09 AM ETDunkin' Brands Group, Inc. (DNKN)KDP, QSR, SBUX, QSR:CA
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Summary

  • Dunkin' is being acquired by Inspire Brands for $8.76B in cash and $11.3B inclusive of debt.
  • The company is now trading at an elevated valuation of 38X forward earnings. Another bidder seems unlikely at this point.
  • Dunkin' is performing relatively well during the COVID-19 pandemic and U.S. stores returned to comparable sales growth in the third quarter.

Dunkin’ Brands Group (NASDAQ:DNKN) has become the second-largest global beverage chain after Starbucks (SBUX). The company rebranded itself in 2019 to Dunkin’, focusing on selling coffee and other beverages instead of donuts. The transformation made sense as consumers move away from unhealthy foods. Dunkin’ was impacted along with other restaurant chains in the initial stages of the COVID-19 pandemic. But the company has seemingly navigated COVID-19 well and after a downturn in comparable sales returned to growth in the U.S. Further, Dunkin’ is now being acquired at a premium. The stock is trading at an elevated valuation and unlikely to have another bidder. I view the stock as a sell at the current valuation.

DunkinSource: Dunkin’ Brands Group

Overview of Dunkin’

Dunkin’ Brands Group, Inc. is a leading global quick service restaurant focusing on coffee and ice cream. The company has two brand segments – Dunkin’ and Baskin-Robbins – and three operating segments that are Dunkin U.S. (78% of revenue), Baskin-Robbins U.S. (6% of revenue), and International (16% of revenue). There are approximately 9,500+ U.S. and 3,500+ International Dunkin’ stores and 2,500+ U.S. and 5,400+ International Baskin-Robbins stores. The Dunkin’ stores sell hot and cold coffee, donuts, and other baked food. Baskin-Robbins sells ice cream. Dunkin’ also licenses its brand for products sold in retail outlets, such as K-Cup pods and ready-to-drink coffees. The company operates a 100% franchise business model. In 2019, companywide revenue was ~$1.37B and systemwide sales were over $12.1B.

Dunkin’ Is Being Taken Private

On October 26, 2020, Dunkin’ announced that it was in merger talks with Inspire Brands after rumors began to surface a few days before. Inspire Brands is the owner of over 11,000 Arby’s, Buffalo Wild Wings, SONIC, and Jimmy Johns. On October 30, 2020, Dunkin’ announced that it agreed to be acquired for $8.76 billion in cash or $106.50 per share. The deal is approximately $11.3 billion

This article was written by

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I am a self-taught individual investor and I have been investing in stocks for approximately 20 years. I focus on dividend growth investing with a long-term horizon since I believe in the compounding power of dividend growth investing. I generally look for undervalued large cap stocks with sustainable dividend growth and capital appreciation potential. My second focus is tech and small- or mid-cap stocks with or without dividends for their growth potential. I try to provide a little more in depth analysis weighing the positives and negatives. You can see my performance at my Tip Ranks profile. I am now in the Top 100 out of 13,540 (73rd and in the top 1.0%) financial bloggers (August 2022).You can follow me at my blog Dividend Power. Read my e-book --> 10 Forever Dividend Growth StocksI also now write stock analyses for Sure Dividend as a part-time free lance equity analyst. I provide investment analyses and research for their Sure Analysis Research Database. I also write stock snapshots for Portfolio Insight.

Disclosure: I am/we are long SBUX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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