Stock to Sell #2: DNKN
Dunkin Brands Group (NASDAQ:DNKN) has put up some good numbers recently, but I’m leery of several things, including the company’s huge debt load and ownership structure. DNKN is a “controlled company,” with over 80% of its ownership in the hands of three private-equity firms (Bain, Carlyle and Thomas H. Lee), which always raises the concern that private-equity owners will want to “cash out.”
In addition, Dunkin Brands faces a tough challenge in its efforts to do better in the afternoons and evenings and unseat Starbucks, the currently leader at those times of the day. DNKN is also not cheap, trading at more than 25X expected 2012 earnings. I think a more reasonable valuation would be around 16X, which would be closer to $20 a share.