Is Dunkin’ Brands Enticing After Recent Headlines?

With shares of Dunkin’ Brands (NASDAQ:DNKN) trading around $49, 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’ Brands reported an impressive set of year-over-year financial results for the fourth-quarter and fiscal year 2013. During the quarter, net income grew 23 percent to $42.1 million from $34.2 million, and revenue increased 13 percent from $161.7 million to $183.2 million. U.S. same-store sales for the quarter increased 3.5 percent at Dunkin’ Donuts and 2.2 percent at Baskin Robbins. During the full fiscal year, net income rose 36 percent to $146.9 million from $108.3 million and revenues increased 8 percent to $713.8 million from $658.2 million. U.S. same-store sales rose 3.4 percent at Dunkin’ Donuts and 0.8 percent at Baskin Robbins.

“We are steadfastly committed to driving profitable growth for both our franchisees and our shareholders, a commitment we delivered on yet again in our second full year as a public company,” said Paul Carbone, CFO, Dunkin’ Brands Group Inc. “As a result of strong topline sales growth and our intense focus on restaurant-level returns, franchisee profitability for both brands is healthier than it’s ever been. Additionally, our nearly 100 percent franchised, asset-light business model enabled us to return more than $100 million to shareholders in 2013 through our quarterly dividends and ongoing share repurchases. We’re also excited to announce the board of directors’ decision to increase our first quarter dividend more than 20 percent over our fourth-quarter 2013 dividend.”

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 near all time highs and looks set to continue this path. 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

24.28%

10%

8%

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

Put IV Skew

Call IV Skew

March Options

Flat

Average

April 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 small 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

22.56%

42.31%

24.24%

16.00%

Revenue Growth (Y-O-Y)

13.28%

8.50%

5.86%

9.45%

Earnings Reaction

3.36%

-0.60%

-1.73%

3.66%

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

0.91%

-6.02%

-1.29%

-5.11%

-1.87%

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 reported an impressive set of year-over-year financial results for the fourth quarter and fiscal year 2013. The stock has been exploding higher since its IPO and is now near all time highs. 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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