Dunkin Brands Gets An Upgrade Ahead Of Q4 Earnings

Dunkin Brands Group Inc DNKN is likely to benefit from its innovation and tempered expectations concerning the risk of a further slowdown at its U.S. unit, according to an analyst at William Blair.

The Analyst

William Blair analyst Sharon Zackfia upgraded Dunkin Brands from Market Perform to Outperform.

The Thesis

The innovation at the company accelerated to the extent that Dunkin Brands could post upside to William Blair's estimate in 2018, Zackfia said in a Monday note.

Dunkin U.S. is expected to benefit from tax savings for franchisees and the new prototype, tempering the risk at the unit, the analyst said. The units in California are likely to fare better than investors' expectations, bolstering geographical portability of the model.

"We also applaud the company's discipline on G&A, as evidenced by plans to decrease G&A spending by 5% this year, which adds greater visibility to EPS growth on an already-high-visibility franchised business model," Zackfia said.

For the fourth quarter, William Blair expects generally in-line results on both comps and earnings. The firm also said the 2018 numbers could go up due to potential tax benefits and G&A discipline, offsetting the penalty associated with new revenue recognition standards for franchise fees.

The company is scheduled to release its fourth quarter results before the market open on Feb. 7.

The Price Action

Dunkin Brands shares are up about 27 percent over the past year.

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