BMO Says Dunkin' 'Not A Slam Dunk,' Won't Outperform Market

In a report published Thursday, analyst Andrew Strelzik of BMO Capital Markets initiated coverage of Dunkin Brands Group Inc (NASDAQ: DNKN) with an Market Perform rating and a price target of $52. While the company is well positioned to capitalize on a robust unit expansion opportunity, apart from other things, Strelzik believes that investors "should wait for a more compelling entry point."

BMO Capital Markets expressed its concerns regarding the sustainability and trajectory of Dunkin' Donuts' U.S. comps, which are currently almost thrice as volatile as the company's premium competitor, Starbucks Corporation (NASDAQ: SBUX).

According to Strelzik, "First, Dunkin' Donuts U.S. is at greater risk of competitive threats as its beverage offering is less differentiated and similar to other value-oriented QSRs… Second, Dunkin' is more reliant on discounting as it competes against QSRs in the value segment, which traditionally employs heavy promotions."

Although Dunkin' Brands is likely to report its 1Q15 below expectations, Strelzik expects the company's 2015/2016 results to exceed expectations. BMPO Capital Markets expects the company to witness EPS growth in the low-to-mid-double-digit range in the long term.