Dunkin's Long-Term Story Remains Intact: Credit Suisse

• The share price of Dunkin Brands Group, Inc. DNKN has declined a little over 22 percent in the last three months, from the high of $56.58 on July 13.
• Credit Suisse’s Jason West has maintained an Outperform rating on the company, while lowering the price target from $58 to $52.
• Although West expressed confidence in the company’s long term domestic unit growth opportunity, the significant same store sales miss in 3Q15 was likely to impact the stock in the near term.

According to the Credit Suisse report, “While DNKN faces near-term competitive headwinds, we believe franchisee store growth will continue at a healthy clip, which is the key driver of free cash flow and valuation.”

Analyst Jason West also believes that the company has key competitive advantages, compared to smaller operators, which would benefit Dunkin Brands in the coffee/breakfast segment in the long term.

The company attributed the 3Q same store sales miss to factors such as “overly aggressive menu pricing by franchisees, removal of 2 popular frozen beverages during the summer, cancellation of a 2 for $3 breakfast sandwich promo, and continued drag from reduced in-store K-Cup sales,” the report stated.

West believes, however, that while Dunkin Brands’ near-term same store sales trends are a cause for concern, “franchisee demand for store growth remains healthy.”

“However, mgmt. clearly has much work to do to repair investor sentiment and reignite customer traffic. In the meantime, the multiple is unlikely to recover to the high-20s peaks any time soon,” West added.

Although the company has reiterated its 2015 guidance the EPS estimates for 2-15 and 2016 have been lowered.