BMO Rates Dunkin Brands Stocks as Hold, Growth Expected

BMO Capital Markets senior analyst, Andrew Strelzik, sets Target price as $52 per share for Dunkin Brands.

BMO Capital Markets initiated its coverage of Dunkin Brands Group Inc. (NASDAQ: DNKN) stock. The sell side firm has rated the stock as a Hold as the company operates in a highly volatile and competitive industry which is expected to grow.

Amid a bullish future outlook, senior analyst, Andrew Strelzik assigned a $52 per share price target at a premium of nearly four dollars on today’s share price. Mr. Strelzik bases his optimistic sentiment over potential growth of the business as well as reinforced cash flows.

Dunkin Brands Group Inc’s shares are currently trading at $48.09 as at 1:26pm EDT after surging by 0.19% since the market opened for trading today. Shares closed at $48 per share on April 15. Shares for the Canton, Massachusetts-based quick serve restaurant chain operator have increased by more than 11% in one year’s time to date.

In the research note, Mr. Strelzik points to Dunkin’s unique position in the industry with its value-oriented restaurants around the globe under the Dunkin’ Donuts’ and Baskin-Robbins brands.

The firm expects Dunkin’ Donuts US comps to surge by up to three percent in the first quarter for fiscal year 2015 to land the figure at 1.5%. Comps for the ice cream segment, Baskin-Robbins are expected to fall through the year. The research note estimates Baskin-Robbins comps to decline from 5% in the first quarter to 3.2% in the second and third as well.

International sales for both brands are also expected to decline as margins will remain stagnant due to discounted prices. In fiscal year 2014, highest profit contributions were made by Dunkin’ Donuts US at 83%, followed by Baskin-Robbins International at 9% and 6% for its US operations – lowest profit contribution to profits came from Dunkin’ Donuts’ International segment at merely two percent.

Mr. Strelzik has valued the stock at $52 per share on the back of strong growth in 2015 and 2016. The rating firm has implied multiples of up to 24 Price to Earnings ratio on the 2016 earnings per share of $2.23.

According to 31 analysts polled by Bloomberg, 16 rate the stock a Buy, 14 rate it Hold and just one has rated the stock as a Sell.