What’s Next for Dunkin’ Brands After Strong Earnings?

Dunkin SignInvestors responded favorably to Dunkin’ Brands’ (NASDAQ:DNKN) fourth-quarter and full-year earnings report, released before the markets opened on Thursday. Shares climbed about 3 percent in pre-market trading, buoyed by results that were more-or-less in line with expectations, and a 27 percent increase in dividends to $0.19 per share for the first quarter.

Highlights for the fourth quarter include 3.2 percent comparable-store sales growth and a 4.3 point bump in adjusted operating margins to 47.6 percent. Revenues were the weakest part of the report, falling 4 percent to $161.7 million, below expectations. However, echoing same-store sales growth and the margin increase, earnings climbed 13.3 percent to $0.34 per diluted share.

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For the year, same-store sales grew 5.2 percent on an adjusted margin of 46.3 percent, a 3.2 percent increase from 2011. Revenues climbed 6.1 percent to $658.2 million, and earnings grew 36.2 percent to $1.28 per diluted share. What’s more, the company opened 665 new restaurants around the world in 2012, including 291 in the United States. This is backed by a plan to expand into California, where the company is expecting to see a healthy reception.

Now, with another strong year under its belt, Dunkin’ Brands is getting ready to tackle 2013…

DunkinIncreasing their price target on the stock from $36 to $40 on Tuesday, analysts at UBS set 2013 and 2014 earnings growth targets of 20 and 19 percent, respectively.

“With our new target, we assume an 18% EPS growth rate over the next 3 years due to accelerated unit growth, and impending customer loyalty/mobile payment initiatives. We continue to believe investors will be willing to pay a premium multiple for companies that exhibit such highly visible and consistent EPS growth,” commented the analysts.

Dunkin’ is trading at a trailing P/E of over 83, which compares to competitors like Starbucks (NASDAQ:SBUX), an investor darling with high growth potential, at just about 30. McDonald’s (NYSE:MCD), which is trying to use coffee to boost breakfast sales, trades at a trailing P/E of about 18.

Growth that strong could definitely warrant the high valuation, and so far the market seems to stand by the bullish case. However, the high end of Dunkin’ Brands’ own forecast comes in a little shy of analyst expectations…

Dunkin’ Brands is expecting 2013 earnings to grow between 15.6 and 17.9 percent to between $1.48 and $1.51 per share. Again, this is just shy of bullish analyst expectations, but company has come in ahead of expectations for three out of the last four quarters.

Fiscal Year 2009
2011 2012 2013 Forecast
Revenue ($)in millions 538.07 577.14 628.20 658.2 704.2
Diluted EPS($) 0.55 0.42 0.35 1.28 1.50

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