Channel Checks Suggest It's Time To Buy The Dunkin Donuts

US checks indicated acceleration in Dunkin Brands Group Inc’s DNKN same store sales in Q3 to-date, Credit Suisse’s Jason West said in a report. He maintained an Outperform rating on the company, while raising the price target from $51 to $52.

Checks Suggest Increased Momentum

Recent checks with several Dunkin' US franchisees suggested an increase in momentum over the past two to three months. This momentum gain has been driven by the rollout of Cold Brew coffee and “a generally more impactful new product pipeline,” analyst West mentioned.

Checks also indicated intense competition in the coffee space, especially from convenience stores. Despite this, there was “a consistent message of improved sales trends beginning in July/Aug,” West noted. He raised the US SSS estimates for Q3 and Q4 from +1.2 percent to +2.0 percent and from +1.3 percent to +2.5 percent, respectively.

The EPS estimates for 2016 and 2017 have been raised from $2.22 to moves to $2.23 and from $2.42 to $2.44, respectively, which are ~1-2c higher than the current consensus expectations.

Stock Movement

Dunkin Brands’ shares have gained around 8 percent since early August, versus a 1 percent decline in the S&P 500. Despite this move, an SSS result of 2 percent or higher “would be viewed positively,” given the company’s “recent history of SSS weakness and the overall backdrop of soft restaurant sales,” the analyst commented.

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