CREDIT SUISSE: There are 3 reasons to be optimistic about Dunkin' Donuts

Dunkin' Brands, the parent company behind Dunkin' Donuts and Baskin-Robbins Ice Cream, reported earnings on Thursday that were in line with Wall Street's expectations.

In a note out to clients on Friday, a duo of equity analysts at Credit Suisse said Dunkin' Brands reported earnings of $0.54 per share and flat same-store-sales (SSS.)


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Dunkin' Brands' lackluster SSS results didn't spook Credit Suisse, and the bank is still bullish on the donut and coffee chain's stock. It has a price target of $61 per share for Dunkin', above the firm's current market price of $56.56 per share.

The bank identified expected improvements in SSS later in the year as one reason for investors to stay bullish on the stock.

"On Dunkin' US SSS, we maintain 2Q17E at +2% but lower our 3Q/4Q to +1.5% (from +2.0%) to reflect the lap of Cold Brew on Aug. 1 and limited visibility into impact of expanded menu simplification test," the bank said.

In February Dunkin' announced it would begin tests on a simplified menu at 300 of its stores to increase speed and efficiency and, in turn, improve sales.

Credit Suisse noted two other reasons to stay optimistic. They are as follows:

  1. Buybacks."Potential re-leverage event in coming qtrs. – we forecast ~$800mm of buybacks in 2017-18, ~15% of market cap (assumes DNKN moves to ~5.4x leverage, near high end of 4.5-5.5x target range and up from ~4.6x today)"

  2. Taxes. The firm has "favorable exposure to potential corporate tax reform (~38% tax rate vs. ~32% for avg. restaurant chain)."

Click here for a real-time Dunkin' Brands Group chart.

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