Cramer’s Stock Call: Dunkin' Brands or Tim Hortons?
The recent collapse in commodity prices has hurt many resource-oriented stocks, noted Jim Cramer on CNBC’s “Mad Money,” but it’s also helped consumers of commodities, as well as companies that thrive on lower gas prices.
In turn, Cramer said investors should stay away from most of the oil and gas or coal companies. Many retailers and restaurants, however, can be terrific buys on weakness.
Take restaurants that sell donuts, for example. Both Dunkin' Brands and Tim Hortons benefit from lower raw material costs, as well as the decline in gas prices. They are expanding across North America, too, making it a classic growth story. So which is the better buy?
The concept at both companies is similar, Cramer said. Each company makes a majority of its money by selling caffeinated drinks, mostly in the morning. From its headquarters in Oakville, Ontario, Tim Hortons enjoys the majority of the business in Canada while Dunkin' Donuts is the U.S.’s No. 2 purveyor of quick-serve coffee, only behind Starbucks.
What matters to Cramer, though, is the ability to both growth and execute. That said, he thinks Dunkin' wins on both counts.
Of its 10,000 locations worldwide, Dunkin' has 7,000 stores in the U.S. Nevertheless, management plans to triple its U.S. store count by 2020. While Dunkin' is a national brand, it only has locations in 35 states with the majority located in New England. Just two weeks ago, it opened its first store in California. The company is also planning on expanding internationally, too, with plans for China, Eastern Europe and the Middle East.
Tim Hortons does plan to expand aggressively into the U.S., but Cramer thinks it needs time to build out its brand. The U.S. is already well acquainted with Dunkin', even in places it lacks a location.
Meanwhile, Cramer thinks Dunkin' does a better job of executing, too. In its latest quarter, it reported a 2-cent earnings beat on a 23-cent basis, along with higher-than-expected revenues. It also raised its full year guidance. Tim Hortons, on the other hand, reported a 3-cent earnings miss on Wednesday. Its revenues were better-than-expected and its U.S. same-store sales grew at an 8.5 percent clip, though.
So what’s the bottom line? Cramer thinks Dunkin' is a buy into any weakness.