America runs on Dunkin', a Dunkin' Brands (NASDAQ:DNKN) product, and even though these days we do a bit less running to Dunkin' since more of us than ever are working from home, we still kick off our workday with some sweet round pastry treats. Now, the latest word is that Dunkin' may be going from a publicly-traded operation to a privately-held one, and it may be getting a big slug of cash to do just that.
Arby's, Jimmy Johns, and Dunkin'?
The latest reports suggest that Dunkin' Brands is poised to go private as the result of a sale to Inspire Brands, the current parent company of Sonic, Rusty Taco, Buffalo Wild Wings, Arby's and Jimmy Johns. The deal is said to be valued at roughly $8.8 billion, which amounts to Inspire Brands paying $106.50 per share to own the company outright. Given that Dunkin' as of this writing is trading at $88.79—which promptly shot up to $104.91—it's a big potential upside in the near-term.
Naturally, Dunkin' came out with a statement downplaying the news, noting that “...there is no certainty that any agreement will be reached.” With over 13,000 Dunkin' locations—as well as roughly 8,000 Baskin-Robbins locations—in the Dunkin' Brands portfolio, such a move would give Inspire Brands quite a bit of new reach. Reports suggest that the move would better than double Inspire's overall reach, giving it just over 35,000 sites owned.
Slumping Sales But a Comeback Brewing
Dunkin' hasn't exactly been treated well by the coronavirus outbreak. Comparable store sales in the US were down substantially by the latest figures, with Dunkin' itself down 18.7% and Baskin-Robbins down 6%. The hit to Baskin-Robbins is particularly egregious given that we just came through the hottest part of the year when ice cream should have been flying off shelves. The picture only got worse when considering the international market, where sales were down over a third as customers throughout Europe, Latin America, and Asia stayed away in droves.
However, as far back as late July, Dunkin' was said to be looking at expansion efforts, taking advantage of the closure of mom-and-pop coffee shop operations to give Dunkin' room to step in. The combination of Dunkin's solid capitalization, low prices and established drive-thru operations put it in an excellent position, which likely wouldn't be replicated by the mom-and-pops shut down by government reaction to coronavirus. Considering, however, that news came out around the same time that Dunkin' was looking to close 800 stores throughout the US, such plans may be a bit overreaching, not to mention terrible optics.
The Analysts Are Slimming Down a Bit
As for the analyst picture, our latest research on the topic suggests there's a lot going on under the hood. While the picture has improved substantially from six months ago, it's fallen off from 30 days ago.
Way back in April, Dunkin' had seven “buy” ratings and 15 “hold” ratings to its credit. 30 days ago, the numbers had shifted healthily in Dunkin's favor, going to 12 “buy” and 13 “hold”. Now, however, the tables have turned a bit and there are 14 “hold” and 10 “buy.” The price target, meanwhile, has been effectively shattered, which was $80.80 previously. Earlier today, both Robert W. Baird and Wells Fargo & Company upgraded their price targets on the company, with Baird going to $106 and Wells Fargo not far beyond that at $106.50.
A Good Buy for Inspire?
There will almost certainly be a place for donuts in the American lifestyle as long as there is money with which to buy them. The notion that Americans will suddenly eschew donuts forever because they're mainly working from home now is preposterous at best. However, the notion that Inspire Brands may be overpaying for the right to call Dunkin' its own isn't out of line; why pay a roughly 25% premium to pick up a donut chain and ice cream parlor in a time when donut and ice cream sales are declining?
Sure, there are possibilities here—a “Luther” style burger at Buffalo Wild Wings using Dunkin' donuts for buns might well draw interest, and Sonic selling Baskin-Robbins would be a pairing par excellence—but these are just possibilities. Certainly, Inspire could use a better breakfast presence and there are few better ways to do that than buying Dunkin'. Dunkin' investors, meanwhile, would have a presence in all restaurant day-parts should such a move go through. This could work out quite well, but watch out for a potential backlash in the short term if that sale falls through, as the buyout appears to be already baked into the current Dunkin' share price.
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