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Topic: How To Invest

Dunkin’ Brands looks to capitalize on new growth opportunities

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Pat McKeough responds to many personal questions about specific stock market investments and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, one Inner Circle member asked us about one U.S. stock that sells three popular fast food items—donuts, coffee and ice cream. Pat looks at the company’s chances to expand in the U.S. and overseas and also examines its venture in the fast-growing business of K-Cups for home coffee machines.

Q: I would like to have your opinion on Dunkin’ Brands Group. Thank you.

A: Dunkin’ Brands Group (symbol DNKN on Nasdaq; www.dunkinbrands.com), has two main restaurant concepts: Dunkin’ Donuts (which supplies 75% of its revenue) and Baskin-Robbins ice cream (25%).

The Massachusetts-based company has nearly 10,000 Dunkin’ Donuts outlets and 7,000 Baskin-Robbins locations in over 60 countries.

In the three months ended September 30, 2012, Dunkin Brands’ earnings per share before one-time items rose 32.1%, to $0.37 from $0.28 a year earlier. Sales rose 5.0%, to $171.7 million from $163.5 million.

How Successful Investors Get RICH

Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.

How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.

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Dunkin’ takes advantage of expanding market for home-coffee systems

The company expects its profits to keep moving up. Dunkin’ Brands is expanding and upgrading its distribution networks. That’s improving its efficiency and boosting its profit margins.

Most of the company’s Dunkin’ Donuts outlets are still concentrated in New York and New England. Baskin-Robbins is pursuing international growth prospects, most notably in Japan, South Korea and the Middle East.

The company also aims to take advantage of fast-growing demand for home-coffee systems. It has an agreement with Green Mountain Coffee Roasters (symbol GMCR on Nasdaq) to make plastic cups, called K-Cups, filled with coffee or cocoa for Green Mountain’s popular Keurig machines. These devices pierce the K-Cup’s foil top and brew a fresh single cup.

Dunkin’ Brands trades at 24.9 times this year’s forecast earnings of $1.25 a share. The stock yields 1.9%.

In the Inner Circle Q&A, Pat looks at Dunkin’ Brands prospects for expansion in the face of increasing competition in the company’s main markets and rising food costs. He concludes with his clear buy-hold-sell advice on the stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

When you look at a popular trend like K-cup coffee machines, do you see a good investment idea? Have you ever invested in a stock that was responsible for a popular trend like this? Was it a good investment? Let us know what you think.

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