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Dunkin' Brands (DNKN) Gains 24% YTD: Will Growth Continue?

Zacks Equity Research

Dunkin' Brands Group, Inc.’s DNKN sales building efforts, aggressive expansion plan and ongoing loyalty program as well as enhanced digital offerings bode well. Evidently, shares of the company have gained 23.8% year to date compared with the industry’s 26.2% rally.

We believe there is still momentum left in this Zacks Rank #2 (Buy) company. This is because the company has an expected long-term earnings growth rate of 9.8%. Let’s delve deeper.

Key Catalysts

Dunkin' Brands is witnessing steady sales growth, courtesy of regular product launches. As demand for coffee is growing significantly, Dunkin is steadily adding new coffee beverages to the menu, both in the value and premium offering segments, like the Macchiato's line of products and the recent — Cold Brew coffee. In the fourth quarter of 2018, the company introduced an entirely new handcrafted espresso beverage across more than 9,000 Dunkin’ U.S. restaurants.

After the successful addition of cold brew in its beverage portfolio, the launch of handcrafted espresso beverage led to solid incremental sales and traffic, and boosted 200-basis point sales mix. In the second quarter of 2019, espresso sales grew more than 40% and contributed to Dunkin' Brands’ overall performances. Espresso and other frozen beverages are expected to continue the momentum ahead.

Given its growing popularity, Dunkin' Brands is expanding its footprint in the emerging markets of Asia and the Middle East. The company also believes that the untapped market of South Africa has a great potential. Of late, it inked a franchise agreement to develop more than 250 Dunkin' restaurants and more than 70 Baskin-Robbins shops in here, over the coming years. Such expansion strategies should boost the company’s top line.

Currently, Dunkin' Brands sees Chile, Philippines, Thailand and Germany on the top of its priority list as they are driving results.

Backed by the aforementioned efforts, the company reported better-than-expected earnings in the trailing seven quarters. Moreover, in the preceding four quarters, the company’s bottom line surpassed the Zacks Consensus Estimate by average of 9.1%.  For 2019, Dunkin' Brands expects adjusted earnings to be $3.02-$3.05 per share, up from $2.94-$2.99 projected earlier.

Other Key Picks

Some other top-ranked stocks that warrant a look in the same space include Brinker International, Inc. EAT, Chipotle Mexican Grill, Inc. CMG and Cracker Barrel Old Country Store, Inc. CBRL. All these stocks carry the same rank as  Dunkin' Brands. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker International, Chipotle Mexican Grill and Cracker Barrel Old Country Store have an impressive long-term earnings growth rate of 5.9%, 18.4% and 9.5%, respectively.

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