Dunkin' Donuts Dropped Down To Sector Perform At RBC

RBC Capital Markets downgraded shares of Dunkin Brands Group Inc (NASDAQ: DNKN) from Outperform to Sector Perform. However, the firm lifted the target price from $51.00 to $54, citing the implied return on the increased price objective reflected the change in rating.

Analyst David Palmer believes sales in the second half of the current year should accelerate citing innovative beverages apart from the early introduction of "On-the-Go mobile" order, which is reflected in the current share price appropriately. He also cited easier comparisons for the acceleration.

In a research note, the brokerage stated, "We are increasing slightly our Dunkin' US 3Q16 SSS growth estimate of 1 percent to 1.5 percent (cons. 1.2 percent) but trimming our 4Q SSS to 1.5 percent from 2 percent (cons. 1.8 percent). Our 3Q16e is now $0.59 (+12 percent YOY; cons. $0.58) and our 2016e EPS remains $2.20 (15 percent
YOY; cons. $2.21), which includes the benefit of a 53rd week."

Related Link: Channel Checks Suggest It's Time To Buy The Dunkin' Donuts

Looking ahead for the fiscal year 2017, RBC expects Dunkin' to deliver SSS growth of 1.5 percent in the United States. Similarly, the firm sees EPS growth of 9 percent at $2.40, which would be lower than the consensus estimate of $2.43. However, the forecast for 2018 has been lifted from $2.69 to $2.74 to represent share repurchases worth about $150 million compared to earlier expectations of $50 million.

The brokerage indicated that its increased tar price reflected its EPS estimate of 2018. The firm believes any additional upside catalyst could take a minimum of two years though there is room from accelerated share buyback and increased dividend.

On Friday, the stock closed at $51.33, and at last check Monday morning, it was down 1.15 percent at $50.74.

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