Chipotle vs. Dunkin' Brands: Which is a Better Restaurant Stock?

Published 09/17/2020, 09:59 PM
Updated 07/09/2023, 06:31 AM

Although the coronavirus pandemic has rattled the stock market, the Zacks Retail-Restaurant industry has had a decent run in the past six months. The industry has rallied 53.5% in the time frame compared with the S&P 500’s growth of 39.9%.

The industry is benefiting from increase in off-premise sales, which primarily includes delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks and food trucks, owing to the coronavirus pandemic. With dining rooms not operating in full capacity owing to the coronavirus-induced crisis, off-premise sales have been increasing sharply.

Moreover, restaurant operators have been focusing on driverless delivery systems to augment sales during the coronavirus-induced scenario. This is likely to bring down expenses substantially and ensure safety amid the pandemic as it does away with delivery personnel. Owing to the crisis scenario, consumers have not only been particular regarding the quality and taste of food but are also preferring contactless delivery. However, dismal store traffic concerns have intensified amid the coronavirus crisis.

In line with the industry’s growth, leading restaurant companies — Chipotle Mexican Grill (NYSE:CMG), Inc. CMG and Dunkin' Brands (NASDAQ:DNKN) Group, Inc. DNKN — have been adapting and deploying strategies to generate profits. With both the companies carrying a Zacks Rank #3 (Hold), let’s analyze and find out which is poised better with respect to different parameters.

Price Performance and Valuation

Chipotle stock has soared 128.6% in the past six months, while Dunkin' Brands stock has gained 76.5%.

On the basis of the forward 12-month P/E ratio, which is a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 32.35X compared with the S&P 500’s 22.37X. Dunkin' Brands has an edge with a lower forward 12-month P/E ratio of 25.72 compared with Chipotle’s figure of 68.02X.

Earnings History and Projected Growth

Dunkin' Brands has beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 6.9%. Meanwhile, Chipotle has beat estimates in the three of the trailing four quarters and missed once, the average surprise being 6.4%. While Chipotle has an impressive long-term earnings growth rate of 19.3%, the same for Dunkin' Brands is anticipated to be 9.3%.


Chipotle has been focusing on expanding digital program to drive growth during the pandemic. In order to drive digital sales and retain customers amid the coronavirus crisis, the company is leaving no stone unturned to make digital ordering extra appealing to customers and more efficient for its restaurants. In this regard, the company has redesigned and simplified its online ordering site, enabled online payment for catering, online meal customizations, and collaborated with several well-known third-party providers for delivery.

In second-quarter 2020, digital sales soared 216.3% year over year to $829.3 million in second-quarter 2020. Digital sales accounted for 60.7% of sales during the quarter. The company has increased focus on digitalization due to the coronavirus pandemic. It is increasing digital awareness via advertising. Moreover, partnerships with Uber (NYSE:UBER) Eats and Grubhub are attracting new customers. The company has also expanded digital capabilities into Canada. Moreover, collaboration with all the major third-party delivery aggregators has increased orders. Although the company’s in-restaurant dining rooms are opening, its digital sales momentum remained strong in July with a mix of nearly 50%.

Dunkin' Brands ranks among the well-established global quick-service restaurant brands. As a result, it enjoys enormous customer trust and brand loyalty making it easier for the company to launch new product lines. Its increased focus on menu innovation, especially on premium products to offer great beverages, is likely to drive growth.

The company has also teamed up with DoorDash to provide delivery from 3,500 restaurants across the United States. Further, Dunkin' Brands has plans to expand delivery facilities to more restaurants with DoorDash in the coming months. The company is growing in terms of its use of digital technology through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivery.

Our Take

Our comparative analysis shows that although Dunkin' Brands has an edge over Chipotle in terms of valuation, the higher projected EPS growth puts Chipotle in the lead. Also, in terms of price performance, Chipotle has clearly outperformed Dunkin' Brands. Fundamentals of both the companies look solid. Taking all the factors into account, we believe Chipotle appears to be faring better than Dunkin' Brands at the moment.

Key Picks

Some better-ranked stocks in the same space include Brinker International (NYSE:EAT), Inc. EAT, Darden Restaurants (NYSE:DRI), Inc. DRI and Domino's Pizza (NYSE:DPZ), Inc. DPZ. Brinker sports a Zacks Rank #1 (Strong Buy), while Darden and Domino's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker has a three-five year earnings per share growth rate of 11.4%.

Darden has a trailing four-quarter earnings surprise of 8.1%, on average.

Domino's fiscal 2020 earnings are expected to rise 33.8%.

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