Dunkin Vs. Starbucks: Analyst Picks A Winner In A Socially Distanced World

Photo courtesy of Dunkin

The restaurant industry has been hammered by the COVID-19 outbreak in 2020, sending share prices throughout the space tumbling. However, certain restaurants are better-positioned to weather the downturn than others.

On Wednesday, Bank of America analyst Gregory Francfort raised his price target for Dunkin Brands Group Inc DNKN from $60 to $72 and said Dunkin is much better-equipped for a socially distanced world than coffee competitor Starbucks Corporation SBUX.

Slam Dunk: Dunkin’s most recent financial update suggested open store same-store sales were down 23% in the second quarter as of May 23 but had improved to just -15% in the week prior to the update.

Fortunately, Francfort said Dunkin’s drive-thru assets help offset the in-store weakness and help insulate Dunkin’s business more than Starbucks.

Bank of America estimates that Dunkin has drive-thrus at 55% of its points of distribution compared to just 34% for Starbucks.

Long-Term Threat: While in-store business may bounce back in time, Francfort is concerned the recent shift toward in-home K-Cup consumption may prove somewhat sticky.

Given the uncertain outlook and the near-term headwinds, Bank of America has a Neutral rating for both Dunkin and Starbucks.

Dunkin’s drive-thru advantage over Starbucks has been reflected in its stock’s outperformance since the March bottom. Dunkin shares have gained more than 66% in that time, more than doubling the 31% gain by Starbucks. Both stocks are still down more than 10% year to date.

Benzinga’s Take: A shift in business from in-store to the drive-thru is not a problem for either company in the long-term. The key metrics investors should be monitoring is a potential permanent shift to K-Cups and any changes in overall market share.