Dunkin’ Donuts restaurants are an institution in New England and popular along much of the East Coast. The company’s richly valued shares now are priced as if the coffee and doughnut chain will duplicate that success in the rest of the country, and that’s a tall order.
Investors snapped up shares of Dunkin’ Brands (ticker: DNKN), the parent of Dunkin’ Donuts and Baskin-Robbins, when the stock went public a month ago at 19. It finished the first day of trading close to 28, and fetched 26 on Friday.
At that price, Dunkin’ trades for a premium to most restaurant stocks, including Starbucks (SBUX), McDonald’s (MCD), DineEquity (DIN) and Tim Hortons (THI), a Canadian chain. Dunkin is valued at 34 times 2010 pro forma earnings of 76 cents a share, a figure that makes certain adjustments to actual financials, including lower interest costs that reflect the company’s reduced debt since last year.