A 16% jump on Monday was enough to make shares of Dunkin’ Brands (NASDAQ: DNKN)
, the parent of Dunkin’ Donuts and Baskin-Robbins, one of the best performers across US equities. This, coming on a day when the Dow Jones finished down nearly 700 points, was no mean feat.
The catalyst for the double-digit percentage jump, which also sent shares to all-time highs, was the news that Inspire Brands is considering making an offer to acquire the $8 billion casual restaurant group. Shares were already up more than 130% since March and well on their way into blue sky territory so Monday’s jump is the icing on the cake for any investor savvy enough to pick up some of the stock back in Q1.
Asked To Dance
While it remains to be seen if anything concrete comes of the talks, there are voices for both sides of the argument on Wall Street. Cowen analyst Andrew Charles thinks an offer from Inspire in the region of $106.50 a share would be accepted by Dunkin’. For context, this is about a 20% premium on where shares closed out last week before the news broke. In a note to clients, Charles said "based on our forecasts, $106.50/share represents 22.4x 2021E EV/EBITDA, or a 27% premium to quick service peers' average 17.7x, and nearly a turn more expensive than Domino's, the most expensive quick-service restaurant with a far superior top-line profile. This far surpasses past Inspire acquisitions of public companies, including Sonic's 15x 2019E EV/EBITDA and Buffalo Wild Wings' 10x 2018E EV/EBITDA".
However, others like KeyBanc Capital Markets think Dunkin’ could be incentivized to hold out for a higher offer. Nothing piques Wall Street’s interest like rumors of a potential takeover and you can be sure there are plenty of rival teams crunching the numbers today to see if there’s any value to be had.
It’s an interesting move as the most recent update from the sell-side was a bearish one. In the first week of October BTIG lowered their rating on Dunkin’ stock from Buy to Neutral. While same-store sales were recovering quickly, “a decline in franchisee cash flow this year and a focus on development outside the core geographies could mean more muted unit growth in 2021."
But maybe it’s the strong performance seen in same-store sales that has made Dunkin’ all the more attractive. The coronavirus pandemic saw non-essential businesses shut overnight and, despite the pleas of a million northeasterners, Dunkin’ was among those who had to shut their doors. But as restrictions have relaxed and stores have reopened, the company’s strong grip of market share, seen in its loyal fanbase, has been more evident than ever.
Either way, everyone likes to be asked to dance and it can only be good news for Dunkin’ bulls that one of the world’s largest restaurant holding companies is thinking of adding their stock to its portfolio. Investors should look for volume to remain elevated in coming sessions as the talks continue and rumors circulate. That being said, with the stock’s RSI already above 80 after yesterday’s pop, there’s a chance for a significant retracement if talks break down or the offer is on the lighter side.
But even if that retrace happens, it could still be viewed as a solid buying opportunity as Dunkin’ are doing everything right to emerge as unscathed as possible from COVID-19 while being talked about by the heavyweights for all the right reasons.
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