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Starbucks vs. Dunkin—Who Wins?

Thursday, 17 Nov 2011 | 6:38 PM ET

People tend to be very particular when it comes to their coffee. Some are die-hard Starbucks lovers, others prefer Dunkin Donuts. But when it comes to the better stock, who wins the war of the java giants?

PEG the Better Value: DNKN vs. SBUX
Using the PEG ratio, Mad Money's Cramer shows investors how they can buy Starbucks for less, on a growth basis, than they'd pay for Dunkin Brands.

According to Cramer, it’s not even a fair fight.

“Starbucks versus Dunkin is sort of like Tiananmen Square—it’s like soldiers with tanks rolling over a bunch of unarmed civilians,” he said.

The tank in this scenario is Starbucks. Both have similar valuations—Starbucks is trading at 1.3 times growth and Dunkin Brands is trading at 1.4 times growth. But Starbucks is a better company with faster growth, Cramer said. So if it’s at the same levels as Dunkin that means it’s a bargain.

Starbucks has an “unrivaled spot in the consumer pantheon” with a rejuvenated business in the U.S., Cramer added. But the real growth driver is international, where the company is expanding like crazy.

Dunkin, on the other hand, is still a “fresh-faced new IPO” and its numbers aren’t as good. It’s growing more slowly than SBUX but it’s more expensive, Cramer said.

Dunkin also just priced its 22 million share secondary offering at $25.62 a share, and Cramer thinks it was done to let its leveraged buyout sponsors sell before the lock-up period expires in January. And if they’re selling, Cramer says you should not be buying.

The bottom line—“Starbucks wins the coffee wars hands down,” he said.

  Price   Change %Change
DUNKIN
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SBUX
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Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

  Price   Change %Change
SBUX
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DUNKIN
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