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Dunkin' Brands Poised for Long-Term Growth, Risks Remain

DPZ MCD WEN DNKN

Trades from $3

On Nov 17, we issued an updated research report on Dunkin' Brands Group, Inc. (DNKN - Free Report) . Headquartered in Canton, MA, the company is a franchisor of quick service restaurants under the Dunkin' Donuts and Baskin-Robbins brands.

Dunkin’ Brands’ earnings beat the Zacks Consensus Estimate in the past seven quarters. However, revenues declined in the most recent quarter. The company’s licensing deals with Keurig Green Mountain and J.M. Smucker to sell Dunkin' K-Cup pods to retailers as well as online customers continue to expand Dunkin’s brand reach.

Notably, given its growing popularity, the company is expanding its footprint in the emerging markets of Asia and the Middle East. The company also considers the untapped market of South Africa a huge potential and recently opened its first store in Cape Town. Such expansion strategies should boost the company’s top line.

Meanwhile, the company is emphasizing the improvement of its core menu, introduction of more customization options and promotional offers, and adding further variations to the value and premium segments, which should boost comps. Increased focus on establishing itself as a beverage leader should further drive sales going forward.

Also, the company is growing in terms of its usage of digital technology through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivering. These initiatives make Dunkin' Donuts more convenient and accessible to customers.

Meanwhile, Dunkin' Brands operates mainly on a full-fledged franchise model. We believe re-franchising a large chunk of the company’s system reduces its capital requirements, and facilitates earnings per share growth and ROE expansion.

However, Dunkin' Brands’ international comps growth has suffered over the past two years at both its Dunkin’ Donuts and Baskin Robbins divisions. Discretionary spending is under pressure due to a number of factors including sluggish local economies, currency devaluation and oil prices.

Further, intensifying competition and a soft consumer spending environment in the U.S. restaurant space add to the company’s concerns.

Zacks Rank & Other Stocks to Consider

Dunkin' Brands has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Domino's Pizza, Inc. (DPZ - Free Report) , McDonald's Corp. (MCD - Free Report) and The Wendy's Company (WEN - Free Report) . While Domino’s sports a Zacks Rank #1 (Strong Buy), Darden and Wendy's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Domino’s 2016 earnings moved up 2.4% over the last 60 days. Meanwhile, for full-year 2016, EPS is expected to improve 22.8%.

The Zacks Consensus Estimate for McDonald's 2016 earnings climbed nearly 2% over the last 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.16%.

Wendy’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 28.38%. Further, for 2016, EPS is expected to grow 23.6%.

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