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George Shipp, whose $1.6 billion Sterling
Capital Equity Income fund has posted returns that put it in the
top 2 percent of large-cap value funds over the last decade,
said that he purchased nearly all of the shares between Dec 18
and Dec 19. Dunkin' Brands shares fell nearly 10 percent over
two days after the company announced 2015 revenue projections
that were below analyst estimates.
Shipp said that he is attracted to the company despite the
reduced projections because of its franchise model, which gives
the company gross margins nearly double the average of its
industry, and by the company's growth prospects at a time when
lower gas prices and a rebounding housing market should lead to
an increase in construction projects.
"If housing picks up, then there are going to be more
construction workers stopping by in the morning," he said.
Analysts are less optimistic about the company's ability to
compete in the crowded marketplace. Wells Fargo cut its rating
on the company Thursday from the equivalent of 'buy' to 'hold.'
Overall, 14 of the 26 analysts tracked by Thomson Reuters have a
'hold' rating on the shares.
Shares of the company are down 2 percent over the last 52 weeks,
compared with a 12 percent gain for the benchmark Standard &
Poor's 500 index. Since the start of January, the company has
rebounded nearly 7 percent.
The company trades at an above-average trailing price to
earnings ratio of 29, in part because of its plan to grow
outside of its core market in the Northeast. Dunkin' Brands has
announced plans to open 425 stores a year in the U.S. over the
next decade, some of which will be part of gas stations.
There are a total of 536 Dunkin' Donuts outposts in New York
City alone, nearly double the 280 Starbucks Corp locations in
the city, according to the Center for an Urban Future, a New
York-based think tank. There are just 4 stores within 50 miles
of Los Angeles, according to the company, giving it more room to
grow compared to competitors such as McDonalds Corp and Panera
Bread Co.
"This is a company that calls markets like Los Angeles an
emerging market," Shipp said, adding that he expects the company
to return more than 7 percent in the year ahead.
"This is not a busted value stock by any means," he said.
(Reporting by David Randall; editing by Linda Stern and Chizu
Nomiyama)
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