Dunkin' Brands IPO Revisited
A couple of months ago, I wrote about the upcoming Dunkin' Brands IPO. Today, Dunkin' Brands released the expected price range and some other details. Dunkin' Brands is the franchisor for Dunkin' Donuts and Baskin-Robbins.
The private equity firms are selling roughly 20% of their stake, issuing 22,250,000 shares plus another 3.3 million shares in a possible over allotment at an expected offering price range of $16-$18. There will be a little under 130 million shares outstanding after the IPO plus another 12 million in possible/likely dilution from options and stock compensation plans. The shares will be listed on the NASDAQ as ticker DNKN.
The SEC filing also included an expected range for the most recent operating quarter. The company is expected to earn between $16.4 and $17.4 million for the quarter on revenue of $155 - $158 million. Results from the same quarter last year were $17.3 million of earnings on $150.4 million of revenue.
Annualizing the most recent quarter's results, accounting for the dilution and the expected offering range cranks out of PE in the low to mid-30's if I did the math correctly. That looks pretty rich for the recent revenue and earnings growth (or lack thereof).
In my May article, I compared Dunkin' Brands to several similar operations and concluded Dunkin' would get interesting to this cheapskate at a market cap of about $1.2 billion. This offering is about twice that.
Maybe I'm missing something, but I don't see why investors should be willing to pay a premium for Dunkin' over companies like Starbucks, Tim Horton's, YUM! or McDonald's. All four of those (and probably many others) seem to have equal or better growth prospects, stronger balance sheets and trade at better valuations than Dunkin' Brands' proposed offering price range.
All that said, I have no doubt some who get in on the IPO and nimble traders will make money in the sugar rush following the IPO open.
OK Fools, what am I missing? Why should investors pay a premium for Dunkin' Brands when a number of other established, successful companies trade at much cheaper valuations?
Disclosure - long McDonald's.