Dunkin’ Brands (DNKN) and Starbucks (SBUX) Critical Contrast

Dunkin’ Brands (NASDAQ: DNKN) and Starbucks (NASDAQ:SBUX) are both retail/wholesale companies, but which is the superior stock? We will compare the two businesses based on the strength of their profitability, institutional ownership, risk, valuation, analyst recommendations, dividends and earnings.

Institutional and Insider Ownership

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97.7% of Dunkin’ Brands shares are held by institutional investors. Comparatively, 73.5% of Starbucks shares are held by institutional investors. 3.1% of Dunkin’ Brands shares are held by insiders. Comparatively, 3.4% of Starbucks shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Dunkin’ Brands and Starbucks’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Dunkin’ Brands 40.77% -190.44% 6.67%
Starbucks 19.28% 56.35% 20.73%

Earnings & Valuation

This table compares Dunkin’ Brands and Starbucks’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Dunkin’ Brands $860.50 million 5.74 $350.90 million $2.43 24.56
Starbucks $22.39 billion 3.66 $2.88 billion $2.06 28.32

Starbucks has higher revenue and earnings than Dunkin’ Brands. Dunkin’ Brands is trading at a lower price-to-earnings ratio than Starbucks, indicating that it is currently the more affordable of the two stocks.

Dividends

Dunkin’ Brands pays an annual dividend of $1.39 per share and has a dividend yield of 2.3%. Starbucks pays an annual dividend of $1.20 per share and has a dividend yield of 2.1%. Dunkin’ Brands pays out 57.2% of its earnings in the form of a dividend. Starbucks pays out 58.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Dunkin’ Brands is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Dunkin’ Brands has a beta of 0.3, suggesting that its stock price is 70% less volatile than the S&P 500. Comparatively, Starbucks has a beta of 0.64, suggesting that its stock price is 36% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations for Dunkin’ Brands and Starbucks, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Dunkin’ Brands 1 8 10 0 2.47
Starbucks 0 11 17 0 2.61

Dunkin’ Brands currently has a consensus price target of $63.68, suggesting a potential upside of 6.69%. Starbucks has a consensus price target of $64.13, suggesting a potential upside of 9.93%. Given Starbucks’ stronger consensus rating and higher possible upside, analysts clearly believe Starbucks is more favorable than Dunkin’ Brands.

Summary

Starbucks beats Dunkin’ Brands on 10 of the 16 factors compared between the two stocks.

About Dunkin’ Brands

Dunkin' Brands Group, Inc., together with its subsidiaries, develops, franchises, and licenses quick service restaurants worldwide. The company operates through four segments: Dunkin' Donuts U.S., Dunkin' Donuts International, Baskin-Robbins International, and Baskin-Robbins U.S. Its restaurants offer hot and cold coffee, baked goods, donuts, bagels, muffins, breakfast sandwiches, hard and soft serve ice creams, frozen yogurts, shakes, malts, floats, and cakes. As of December 30, 2017, the company had 12,538 Dunkin' Donuts points of distribution and 7,982 Baskin-Robbins points of distribution. It franchises restaurants under the Dunkin' Donuts and Baskin-Robbins brands. The company is headquartered in Canton, Massachusetts.

About Starbucks

Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; China/Asia Pacific; Europe, Middle East, and Africa; and Channel Development. Its stores offer coffee and tea beverages, roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, and food and snacks; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. It offers its products under the Starbucks, Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange, Ethos, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers, premium Tazo, and Starbucks VIA brand names. As of November 2, 2017, the company operated 27,339 stores across 75 countries. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington.

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