Don't Get Burned by Dunkin's Hot IPO – Check out AFC Enterprises Instead

Benzinga Radio talked with analyst Sam Yake of BGB Securities and he provided some great insight into Dunkin' Brands DNKN IPO and other overlooked values in the quick service restaurant space. Dunkin' Brands is getting a lot of attention with its hot IPO, initially offered at $19 / share, climbing to nearly $30 and ending the day closer to $28. The current private equity owners offered only 25% of the ownership to the public and Yake suspects they are using part of these proceeds to pay down debt. Nearly all of their stores are franchisee-owned, and this franchise business model allows them to expand their distribution without further capital expenditures.  Dunkin' aims to please their best, most frequent customers and franchise owners. A great sign of this franchisee satisfaction is that 90% of their new franchises are opened by owners with other Dunkin' stores. Future growth of the company is tied to Dunkin's ability to make their franchisees very profitable which leads to further franchise royalties and drives new unit growth. For comparison's sake, Dunkin is trading at 17x times EBITDA which is higher currently than Starbucks SBUX at around 15x while Tim Horton's THI is closer to 12x. Yake, who considers himself a value investor, sees these valuations to be very rich but sees other values at cheaper multiples in the quick service restaurant business. He cites an oft-overlooked company, AFC Enterprises AFCE, which has Popeyes Chicken with very strong global potential. Quick-serve chicken stores have great global appeal - see YUM Brands' YUM KFC which has tremendous global growth.  AFC only has 25 million shares outstanding at $15, and it has an enterprise value of about $400 million. For more detail, check out the audio from Benzinga Radio's full interview with Sam Yake of BGB Securities.