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Can Dunkin' Brands (DNKN) Q1 Earnings Spring a Surprise?

Dunkin' Brands Group, Inc. DNKN is set to report first-quarter 2016 results on Apr 28, before the market opens.
 
Last quarter, the company posted a positive earnings surprise of 4%. In fact, the company has delivered positive surprises in the trailing four quarters, bringing the average to 5.31%.


 
Let's see how things are shaping up for this announcement.
 
Factors to Consider
 
Dunkin' Brands operates through the Dunkin' Donuts and Baskin-Robbins brands. The company’s strategic initiatives to boost sales such as more drive-through locations, menu innovation and breakfast-menu optimization should boost first quarter results. Meanwhile, the newly launched digital initiatives and global expansion, mainly in the emerging markets, are likely to aid the company's international operations.

Further, the company’s renewed multi-year partnership with Keurig Green Mountain and J.M. Smucker, signed in 2015, to manufacture, market, distribute and sell Dunkin' K-Cup pods at retailers in the U.S. would benefit the top line. 

Nevertheless, like other restaurant chains, Dunkin' Brands' upcoming results are likely to be hurt by high labor expenses.. Further, intense competition in the quick service space would hurt the company's top line in the to-be-reported quarter. Also, the breakfast segment – historically one of Dunkin' Brands' most profitable divisions – is facing immense competition with more companies grabbing market share. This would hurt the company’s top line in the near term.
 
Earnings Whispers
 
Our proven model does not conclusively show that Dunkin’ Brands is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
 
Zacks ESP: The company’s ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 43 cents.   
 
Zacks Rank: Dunkin' Brands' Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.
 
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
 
Stocks to Consider
 
Here are some stocks in the restaurant industry that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Domino's Pizza, Inc. DPZ, with an Earnings ESP of +2.06% and a Zacks Rank #2.

Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +0.91% and a Zacks Rank #3.

Bojangles', Inc. BOJA, with an Earnings ESP of +5.88% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DUNKIN BRANDS (DNKN): Free Stock Analysis Report
 
DOMINOS PIZZA (DPZ): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
BOJANGLES INC (BOJA): Free Stock Analysis Report
 
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