Can Dunkin’ Brands Continue to Outperform?

With shares of Dunkin’ Brands (NASDAQ:DNKN) trading around $48, is DNKN an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Dunkin’ Brands owns, operates, and franchises quick service restaurants under the Dunkin’ Donuts and Baskin-Robbins brands worldwide. The company operates in four segments: Dunkin’ Donuts U.S., Dunkin’ Donuts International, Baskin-Robbins International, and Baskin-Robbins U.S. Its restaurants offer coffee, donuts, bagels, ice cream, frozen beverages, baked goods, and related products. The increasing popularity of the product offerings by Dunkin’ Brands is fueling excellent growth for the company.

Dunkin’ Donuts, America’s all-day, everyday stop for coffee and baked goods, is celebrating the holidays in a big way throughout the Metro New York area. Dunkin’ Donuts’ holiday coffee and lattes can boost holiday spirits and help keep people running all throughout the busiest time of the year. Dunkin’ Donuts’ new Red Velvet Latte features the indulgent, sweet taste of red velvet cake and cream cheese frosting, topped with a festive red drizzle. Also available are classic holiday favorites Peppermint Mocha and White Chocolate. All of Dunkin’ Donuts’ coffee and lattes are available hot or iced.

T = Technicals on the Stock Chart Are Strong

Dunkin’ Brands stock has been on a bullish move higher since its initial public offering in 2011. The stock is currently trading sideways and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Dunkin’ Brands is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

DNKN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Dunkin’ Brands options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Dunkin’ Brands options

24.81%

70%

68%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Dunkin’ Brands’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Dunkin’ Brands look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

42.31%

24.24%

16.00%

131.50%

Revenue Growth (Y-O-Y)

8.50%

5.86%

9.45%

-4.04%

Earnings Reaction

-0.60%

-1.73%

3.66%

2.04%

Dunkin’ Brands has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Dunkin’ Brands’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Dunkin’ Brands stock done relative to its peers, Starbucks (NASDAQ:SBUX), McDonald’s (NYSE:MCD), Yum Brands (NYSE:YUM), and sector?

Dunkin’ Brands

Starbucks

McDonald’s

Yum Brands

Sector

Year-to-Date Return

46.16%

48.24%

8.50%

13.95%

30.21%

Dunkin’ Brands has been a relative performance leader, year-to-date.

Conclusion

Dunkin’ Brands provides delicious items that fulfill the sweet cravings of many consumers. The company is celebrating the holidays with holiday coffee and lattes that can boost holiday spirits and help keep people running all throughout the busiest time of the year. The stock has been exploding higher since its IPO and is now trading sideways. Over the last four quarters, earnings and revenues have been rising, which has pleased investors in the company. Relative to its peers and sector, Dunkin’ Brands has been a year-to-date performance leader. Look for Dunkin’ Brands to OUTPERFORM.

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