Better Coffee Play: Starbucks or Dunkin’?
Starbucks vs. Dunkin’: Lower price points and higher drive-thru availability could give Dunkin’ an edge if social distancing measures persist and economic fallout from COVID-19 persists.
“We remain concerned about SBUX's breakfast and urban exposure, and are increasingly concerned about a competitive shift away from SBUX to competitors that remained largely open since the end of March, such as DNKN, that may not be near-term in nature,” said Wedbush analyst Nick Setyan.
“Dunkin' seems to be outperforming its largest coffee competitor in recent weeks. We attribute this in part to superior value perceptions as per our proprietary survey data,” said Cowen analyst Andrew Charles.
Risk of a “second wave”: Cowen research reveals that Starbucks’ U.S. traffic is highly correlated (+0.62) with non-payroll growth. The firm concludes that a period of underperformance is likely if economic deterioration is dragged out.
State of Starbucks: The coffee chain issued a business update disclosing U.S. same store sales improved to -43% in May from -63% in April. Starbucks said it lost as much as $3.2 billion in revenue during its fiscal third quarter due to the coronavirus pandemic. Starbucks looks to get back on track now that 95% of domestic stores have reopened.
Analyst ratings: Wedbush maintains NEUTRAL and $75 price target; Cowen maintains MARKET PERFORM with $76 price target; Piper Sandler maintains NEUTRAL and updated PT to $79; Keybanc downgraded to SECTOR WEIGHT from OVERWEIGHT, citing valuation, as well as concerns over sales and earnings recovery.
