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Clash Of The Coffee Titans: Starbucks Versus Dunkin

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Clash Of The Coffee Titans: Starbucks Versus Dunkin
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In a new report, analysts at Citibank pitted coffee shop rivals Starbucks Corporation (NASDAQ: SBUX) and Dunkin Brands Group Inc (NASDAQ: DNKN) head-to-head in a six-part comparison of different aspects of their businesses.

Analysts picked a winner in each category and then declared a champion.

1. Domestic Outlook

Currently, Starbucks has about 48 percent more stores nationwide than Dunkin does. As Dunkin continues its expansion in the West, analysts see a major domestic opportunity in California, where a recent Citi survey showed coffee drinkers have a favorable perception of Dunkin.

Winner: Dunkin' Donuts

2. International Outlook

Although about 77 percent of Starbucks' revenue comes from the U.S., the company's international presence, which includes over 9,500 locations, makes it a global force.

Winner: Starbucks

3. Digital Capabilities

Although Dunkin has recently increased its focus on loyalty and digital and mobile initiatives, this part of the competition simply comes down to numbers. There are currently more than 9 million My Starbucks Rewards members and only 2.5 million DD Perks members.

Winner: Starbucks

Related Link: Where Will Longs Re-Enter Starbucks?

4. Consumer Packaged Goods

Dunkin recently announced it will be launching K-Cups in U.S. grocery stores beginning May of this year. While Dunkin has room to grow its packaged goods numbers domestically, analysts see a similar growth opportunity for Starbucks internationally, based on the company's global brand awareness.

Winner: It's a tie

5. Store Economics

Analysts like Starbucks' average unit volume of $1.3 million, about 40 percent higher than Dunkin's. However, they also note that Dunkin's first-year, cash-on-cash returns for new locations have been greater than 25 percent, for an impressive four consecutive years.

Winner: It's a tie

6. Valuation

Starbucks' stock has outperformed both Dunkin and the S&P 500 in the past year, and the stock currently sports an estimated 28.8 price to earnings ratio (P/E) based on 2016 projections.

Dunkin's stock currently trades at a projected 2016 P/E of only 25.5, lower than Starbucks and asset-light franchise peers Domino's Pizza, Inc. (NYSE: DPZ) (29.5 P/E) and Restaurant Brands International Inc (NYSE: QSR) (37.8 P/E).

Winner: Dunkin' Donuts

A Champion Declared

Analysts acknowledge that both coffee companies put up a strong fight, adding, "Over the coming years, we think a number of factors, including an improving economic outlook, robust emerging market opportunities and continued growth in food away from home spending should benefit the coffee-specialty sector."

However, analysts give the slight edge to Starbucks overall because of its premium brand positioning and international growth opportunities.

Citi has a Buy rating on both Starbucks and Dunkin Brands.

 
Image Credit: Public Domain

Latest Ratings for SBUX

DateFirmActionFromTo
Dec 2017Tigress FinancialInitiates Coverage OnBuy
Nov 2017Morgan StanleyMaintainsOverweight
Nov 2017UBSMaintainsBuy

View More Analyst Ratings for SBUX
View the Latest Analyst Ratings

Posted-In: Citi Citibank S&P 500Analyst Color Long Ideas Analyst Ratings Trading Ideas Best of Benzinga

 

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