Piper Sandler Upgrades Dunkin' Brands: 4 Reasons Why

Research firm Piper Sandler came out with a "relatively contrarian" call Monday by upgrading coffee chain Dunkin Brands Group Inc DNKN while 63% of Street analysts remain at Neutral or Sell.

The Dunkin' Analyst: Nicole Miller Regan upgraded Dunkin' Brands from Neutral to Overweight with a price target lifted from $66 to $89.

The Dunkin' Takeaways: Investors may want to consider "incremental exposure" to the restaurant sector and Dunkin' in particular for four reasons, Miller Regan said in the Monday upgrade note.

First, Dunkin' boasts an attractive business model of low ticket and high frequency that is considered an "affordable" luxury purchase, the analyst said. The company's push into digital tools like loyalty should help with gaining market share moving forward, she said. 

Second, franchise business models generally offer a more efficient and less capital-intensive exposure to the restaurant industry, Miller Regan said.

The Dunkin' model in particular presents relatively risk-free and high-margin royalty revenue streams given its 100% franchised ownership structure, the analyst said. Dunkin' also benefits from an "overall healthy working relationship" between the franchisee base and corporate head office, she said. 

Third, today's environment favors the coffee chain's higher exposure to suburban and rural markets as opposed to urban and business district areas, Miller Regan said. Dunkin' has high exposure to the Northeast region, which is undergoing an economic re-opening process faster than Western states like California, the analyst said. 

Finally, food products in general that are more difficult to prepare or recreate at home and are relatively cheap at restaurants will command growing consideration in consumer minds, she said. Consumers that already upgraded their at-home coffee accessories will find it difficult or inconvenient to replicate the innovative products that Dunkin' offers, according to Piper Sandler. 

DNKN Price Action: Shares of Dunkin' Brands were trading lower by 1.35% Monday morning at $75.39. 

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Photo courtesy of Dunkin Brands.