Shares of Dunkin Brands Group Inc DNKN are trading at a premium valuation versus its historical average but still has room to move higher, according to Guggenheim.
The Analyst
Matthew DiFrisco maintains a Buy rating on Dunkin' with a price target lifted from $83 to $86.
The Thesis
Guggenheim's revised price target is based on 19 times estimated 2020 EBITDA which is a 16% premium versus its three-year average EV/EBITDA multiple, DiFrisco wrote in a note. The premium is justified as the coffee and food chain represents an "attractive potential target" given its strong growth potential in the U.S., a high return/CF franchise model, and improving digital integration.
The bullish case for Dunkin' can also be justified amid an improving balance sheet, the analyst wrote. The company's debt/adjusted EBITDA ratio as of September stood at five times which is in the middle of management's 4.5 to 5.5 times target range.
Assuming capital expenditure remains flattish and EBITDA expands at a mid-single-digit pace, Dunkin would be in a position to once again expand leverage by around 1.0 times EBITDA, or $500 million. This could translate to a "meaningful" share repurchase as the current program as $195.2 million remaining as of the end of September.
Price Action
Shares of Dunkin Brands Group were trading higher by 0.19% at $78.76.
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