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Dunkin (DNKN) Stock Up 19% YTD: Strategic Efforts on Track

Zacks Equity Research

Dunkin' Brands Group, Inc. DNKN is poised to grow, given its focus on strengthening the beverage portfolio, solid digital initiatives and aggressive expansion strategies. The company also has a robust earnings trend which makes the stock a profitable investment choice at the moment.

Shares of Dunkin’ Brands, which currently carries a Zacks Rank #2 (Buy), have outperformed its industry so far this year. The stock has gained 19.1% compared with the industry’s 18.9% growth.

Moreover, an upward revision in earnings estimates for 2019 and 2020 reflects analysts’ optimism in the company’s growth potential. Over the past 60 days, the Zacks Consensus Estimate for its earnings in 2019 and 2020 has moved up by 2% and 0.9% to $3.12 and $3.29, respectively. Let’s delve deeper.

Key Catalysts

Dunkin’ Brands continues to boost sales through regular product launches. With the demand for coffee expected to grow going forward, Dunkin is continuously adding new coffee beverages to the menu, both in the value and premium offering segments like the Macchiato's line of products and the recent — Cold Brew coffee. In the fourth quarter of 2018, the company introduced an entirely new handcrafted espresso beverage in more than 9,000 Dunkin’ U.S. restaurants.

After the successful addition of cold brew in the beverage portfolio, the launch of handcrafted espresso beverage continues to drive growth. In fact, in the third quarter of 2019, espresso sales grew more than 40% year over year.
Moving forward, espresso and other frozen beverages are expected to continue the momentum across the beverage portfolio. Recently, the company launched Donut Fries and a Dunkin' Run platform, a $2 snacking menu, which helped drive sales.

These apart, Dunkin’ Brands’ solid focus on building new restaurant designs is commendable. It designed a next-generation restaurant involving technology that aims to provide a rich and faster restaurant experience, and deliver quality food and beverages. Over the next three years, Dunkin’ U.S. franchisees expect to open 200-250 net new units of next-gen restaurants annually.

On the digital front, Dunkin’ Brands is expanding through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivery. These initiatives make it more convenient and accessible to customers.

All these strategies will help the company to deliver impressive top-line performance in the coming quarters. The Zacks Consensus Estimate for its 2019 sales is pegged at $1.4 billion, suggesting 3.6% growth from the year-ago reported figure.

Focus on Expansion

Given its growing popularity, Dunkin’ Brands is expanding footprint in the emerging markets of Asia and the Middle East. The company also considers the untapped market of South Africa a great potential, and has inked a franchise agreement to develop more than 250 Dunkin' restaurants and more than 70 Baskin-Robbins shops in here over the coming years. Such expansion strategies should boost its top-line performance.

Furthermore, the company sees Chile, Philippines, Thailand and Germany on the top of its priority list as these are driving positive results.

Currently, Dunkin’ Brands is working on the design of its restaurant image and plans to have beta locations in the market later this year. The new design is believed to be transformational from a design, equipment and technology perspective.

Other Stocks to Consider

Other stocks, that warrant a look in the same space include Chuy's Holdings, Inc. CHUY, Brinker International, Inc. EAT and Chipotle Mexican Grill, Inc. CMG. While Chuy’s, sports a Zacks Rank #1 (Strong Buy), Brinker and Chipotle carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy’s and Chipotle have an impressive long-term earnings growth rate of 17.5% and 19.6%, respectively.

Shares of Brinker have gained 13.9% in the past six months as compared with the industry’s growth of 0.1%.

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Dunkin' Brands Group, Inc. (DNKN) : Free Stock Analysis Report
 
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
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