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Dunkin' Brands One-Year Risk-Reward Outlook Remains Attractive

Baird still believes the one-year-out risk/reward on Dunkin Brands Group Inc DNKN 1.93% remains attractive at current levels despite mixed results for the second quarter.

The company's adjusted EPS grew 14 percent to $0.57 (projected $0.55; consensus $0.56) on revenue growth of 2.3 percent (below +3.9 percent estimate/consensus). Dunkin' U.S. comps rose 0.5 percent (vs. +2.8 percent; forecast +1.0 percent; consensus +0.9 percent).

Baird sees potential for Dunkin' U.S.comps/traffic to improve in the second half of 2016 as the brand cycles much easier comparisons versus last year and the company begins to see benefits from a range of factors, including the June launch of On-the-Go Ordering.

Dunkin Brands maintained its 2016 guidance for EPS of $2.20 - $2.22 (consensus: $2.21), and projects U.S. comps to grow 0-2 percent.

However, it trimmed the full-year revenue outlook to +3-5 percent (from +4-6 percent) based on plans to refranchise most of its company-operated locations.

"We are holding 2016E EPS of $2.21, assuming Dunkin' U.S. comps +1.5% in 2H16E after +1.2% in 1H16," analyst David Tarantino wrote in a note.

Tarantino has an Outperform rating and $52 price target on the stock.

"We remain cautiously optimistic that planned initiatives can drive better top-line momentum against easier comparisons in 2H16, which we believe would help to enhance the visibility related to the fundamental outlook and contribute to improved investor sentiment on the stock," Tarantino added.

Jul 2016Goldman SachsMaintainsNeutral
Jul 2016Goldman SachsMaintainsNeutral
Apr 2016NomuraInitiates Coverage onNeutral

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