Wells Fargo Turns Negative On Dunkin' Brands

Jeff Farmer of Wells Fargo on Thursday downgraded shares of Dunkin Brands Group Inc (NASDAQ: DNKN) to Market Perform from Outperform due to valuation concerns with an unchanged valuation range of $46 to $48.

“We believe current valuation reflects the prospect for modest top and bottom line growth in the near and intermediate term,” Farmer wrote. The analyst adds that he expects low-single-digit same-store sales growth trends to remain given ongoing competitive headwinds, the company's pursuit of strategic/”smart” discounting and continued K-Cup sales headwinds.

Farmer does add that investors view Dunkin' Donuts U.S. same-store sales growth as a key barometer of business trends, and shifts in same-store sales have historically had a meaningful impact on valuation. The analyst adds that the company has already stated it expects 1 percent to 3 percent same-store sales growth in 2015, below the long-term target of 2 percent to 4 percent.

Bottom line, Farmer expects to see a limited multiple expansion until there is greater clarity on both the drivers and timing of the resumption of margin expansion.