Will Dunkin’ Brands Continue to Rise on Recent Earnings?

With shares of Dunkin’ Brands (NASDAQ:DNKN) trading around $47, 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, the parent company of Dunkin’ Donuts and Baskin-Robbins, reported results for the third quarter ended September 28.”Both Dunkin’ Donuts and Baskin Robbins U.S. continue to have excellent momentum and delivered another quarter of strong comparable store sales and net new restaurant growth,” said Nigel Travis, chairman and CEO of Dunkin’ Brands.

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 now trading near all-time high prices and looks ready to continue. 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 signals neutral to bullish price action in the near-term.

DNKN

Source: Thinkorswim

Taking a look at the implied volatility 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

24.31%

26%

24%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of Thursday, there is 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 minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Rising 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%

131.5%

Revenue Growth (Y-O-Y)

8.5%

5.86%

9.45%

-4.04%

Earnings Reaction

-0.6%

-1.73%

3.66%

2.04%

Dunkin’ Brands has seen rising 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), and Yum! Brands (

target=”_blank”>NYSE:YUM

) — and sector?

Dunkin’ Brands

Starbucks

McDonald’s

Yum! Brands

Sector

Year-to-Date Return

43.97%

51.17%

9.35%

1.61%

27.52%

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 recently released its quarter three results that delivered another quarter of strong comparable store sales, leaving investors happy. The stock has been exploding higher since its IPO and is now trading near all-time high prices. 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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