Dunkin Brands Group Inc DNKN, the parent company of Dunkin' Donuts and Baskin-Robbins, unveiled initial details of its next-generation concept store called NextGen DD, which impressed at least one Wall Street analyst.
The Analyst
BMO Capital Markets' Andrew Strelzik upgraded Dunkin Brands' stock from Market Perform to Outperform with a price target boosted from $64 to $69.
The Thesis
Dunkin Brands' new store concept and three-year plan for its Dunkin' Donuts chain should see a positive response from consumers as it "dramatically" updates the brand's presentation and innovation, Strelzik said in a note. The new store format will also incorporate elements to improve mobile usage and improve back-of-house operation.
The NextGen remodels could result in a 50 to 100 basis point annualized comp boost is based on the company's remodel pace and the average lift from remodels done at other restaurant companies, the analyst said. As such, this creates a favorable risk to reward profile for the stock, especially as shares are trading near trough levels excluding its cash of 18 times forward-12 month P/E. The stock has only traded at below an 18 times multiple for just a three-week period since its initial public offering in July 2011.
FAn upgrade to a bullish stance may be "early" relative to when the company will realize improved results from its refresh, Strelzik said. This is a catalyst, however, that "we cannot time and do not want to miss," especially when factoring in an eventual deployment of Dunkin Brands' excess cash to shareholders.
Price Action
Shares of Dunkin Brands were trading flat early Monday morning.
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