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What’s in Store for Dunkin’ (DNKN) this Earnings Season?


Dunkin' Brands Group, Inc. DNKN is set to report third-quarter 2016 results on Oct 20, before the market opens.

Last quarter, the company posted a positive earnings surprise of 1.79%. In fact, the company the company’s earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 2.52%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Dunkin' Brands operates through the Dunkin' Donuts and Baskin-Robbins brands. Various sales and digital initiatives undertaken by the company such as more drive-through locations, menu innovation, breakfast-menu optimization, introduction of loyalty program and mobile ordering service should boost third-quarter results.

Further, the company’s licensing deals with Keurig Green Mountain and J.M. Smucker, to manufacture, market, distribute and sell Dunkin' K-Cup pods to retailers in the U.S. should continue to benefit the top line.

Nevertheless, like other restaurant chains, Dunkin' Brands' upcoming results are likely to be hurt by high labor expenses. Also, the breakfast segment – historically one of Dunkin' Brands' most profitable divisions – is facing immense competition with more companies grabbing the market share. This could hurt the company’s top line in the near term.

Moreover, a downward trend in the overall restaurant industry space might hurt traffic and comps in the to-be-reported quarter.

DUNKIN BRANDS Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Dunkin’ Brands is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Dunkin' Brands' Earnings ESP is -1.72%. This is because the Most Accurate Estimate stands at 57 cents while the Zacks Consensus Estimate is pegged at 58 cents.

Zacks Rank: Dunkin' Brands' Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some restaurant companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Wendy’s Company WEN with an Earnings ESP of +10% and a Zacks Rank #2.

The Cheesecake Factory Incorporated CAKE with an Earnings ESP of +1.64% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fogo de Chao, Inc. FOGO with an Earnings ESP of +13.33% and a Zacks Rank #3.

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