Barclays: Dunkin' Brands Attractive Following Pullback

Shares of

Dunkin' Brands

DNKN

peaked at $53.05 per share back in March and have since been underperforming the Nasdaq, S&P 500 and Dow Jones indices. In a note to clients on Wednesday, analysts at Barclays find the pullback in shares to be “compelling.” “We've always been intrigued by the Dunkin' Brands fundamental investment thesis, with valuation our primary concern,”

Jeffrey Bernstein, Barclay's restaurant analyst wrote. “And while never ‘cheap', and long-term fundamentals currently more compelling than short term (with ‘competition brutal'), we believe the most recent pullback offers an attractive entry point. Bernstein notes that the underperformance in shares is due to a disappointing first half of the year along with a poor full year fiscal 2014 guidance reduction. The bar is effectively reset and Bernstein is bullish on the company's breakfast and beverage segments which are the strongest in the Quick Serve Restaurant space. At the same time, Dunkin Donuts' franchise model is generated a high margin annuity stream of royalty income which offers a form of protection against comp and cost volatility. Looking forward, Bernstein believes the company could see a two percent to three percent rise in comps, driven by improved marketing, a strong product pipeline and a ramp of Dunkin' Donuts' Perks loyalty program. Bernstein projects Dunkin' Brands could increase its store count to 15,000 from 7,800 today following a successful expansion to the Western U.S. Shares are upgraded to Overweight from Equal-weight with a price target raised to $51 from a previous $48.

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