Can Dunkin’ Brands Outperform in the Global Coffee Wars?
With shares of Dunkin’ Brands Group, Inc. (NASDAQ:DNKN) trading around $32.61, is DNKN an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
Shares of Dunkin’ Brands closed up 3 percent on December 17 after Joh. A. Benckiser Group, a German holding company, agreed to buy Caribou Coffee Company (NASDAQ:CBOU) for $16 per share, a 30 percent premium on the stock’s previous closing price.
Caribou Coffee owns about 610 outlets in 22 states and competes Dunkin’ Brands and Starbucks Corporation (NASDAQ:SBUX), which closed up 2.29 percent on the news of the acquisition.
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Ostensibly, the acquisition is a thorn in the side for America’s leading coffee outlets. The closely-held Benckiser Group has a penchant for buying top shops. Caribou Coffee will continue to operate independently with its own brand, but has gained the financial backing of the multi-billion-dollar company.
It’s less clear why Starbucks and Dunkin Brands should rise on the news, but the obvious answer is that the acquisition is a vote of confidence for the coffee industry at large. Investors seemed to interpret the acquisition not as a threat to the established coffee giants, but as a sign that the industry has room to grow.
E = Equity to Debt Ratio is Close to Zero
Dunkin’ Brands’ debt-to-equity ratio of 5.84 looks pretty bad no matter what light its viewed in, and compares unfavorably to its competitors. Starbucks, perhaps Dunkin’ Brands’ closest competitor, has a debt-to-equity ratio of just 0.11. McDonald’s Corp. (NYSE:MCD), which competes with Dunkin’ Brands as a breakfast destination (and more and more as a lunch destination), clocks in with a debt-to-equity ratio of 0.96.
It’s also important to consider total debt and total cash on hand, which for Dunkin Brands is $1.86 billion in debt and $165.64 million in cash. Starbucks has total debt of $549.60 million and total cash of $2.04 billion, and McDonald’s has total debt of $13.26 billion and total cash of $2.19 billion.