Wedbush's Checks With Dunkin Franchisees Points To Bullish Outlook

First-hand conversations and checks with Dunkin Brands Group Inc (NASDAQ: DNKN) prompted one research firm to upgrade the coffee chain's stock.

The Analyst

Wedbush's Nick Setyan upgraded Dunkin Brands from Neutral to Outperform with a price target lifted from $76 to $92.

The Thesis

Dunkin franchisees expressed a "noticeable uptick in positive expectations" from a combination of lower cannibalization due to slower unit growth, simplification of the menu, technology initiatives, and a better focus on expanding the brand message.

Setyan said the encouraging initiatives helped generate a higher throughput, especially during morning hours and this trend looks sustainable beyond the near term.

Looking forward, same-store sales growth should come in above consensus estimates of 1.3% in the second quarter at 2%, according to Setyan. This growth rate implies an acceleration in a two-year stack from 1.9% to 3.4%. Encouragingly, each 1% of comp growth would translate to 2 cents to 4 cents of incremental earnings per share.

Bottom line, signs of an inflection point beyond the near term at Dunkin is "high enough" to warrant a bullish stance on the stock.

Price Action

Shares of Dunkin Brands hit a new all-time high of $83.22 Monday morning and were higher by around 2% to $81.26 at time of publication.

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