Mad Money

Cramer: Dunkin Donuts' IPO Sounds Tasty

Cramer is always on the look out for new opportunities and on Thursday, he discussed a tasty one — Dunkin Donuts, which is expected to make its initial public offering this month.

How to Make Money on Coffee

(Slideshow—Cramer: Buy This, Not That)

Dunkin Donuts (expected to trade under ticker symbol DNKN) is not only taking part in the coffee bull market, it also has the Baskin-Robins brand, making it the number one player in quick-serve coffee, iced coffee, donuts, bagels and muffins in the United States, in addition to being the top seller of hard ice cream in the country. The company currently has more than 9,000 locations with more than 6,000 Baskin-Robins points of distribution.

More important, though, is that Dunkin's business model provides for new store growth. Nearly 100 percent of its locations are franchised, so it doesn't have to pay to roll out new stores. Dunkin franchises cost roughly $474,000 to start, but then average $855,000 in annual sales. The franchises are a great investment, which is why existing franchisees are eager to open new locations. Over the next 20 years, the company thinks it can more than double its U.S. store count.

On Monday, Dunkin announced the terms for its IPO. They plan to sell 22.3 million shares at a price range of $16 to $18. At those levels, Cramer said Dunkin would sell for roughly 20 times earnings. At first glance, that may sound expensive, but Starbucks sells for 22 times earnings and is growing faster than Dunkin. In the fourth quarter of last year, Starbucks' same-store sales grew at an 8 percent clip while Dunkin's increased by just 4.7 percent. What's matters, though, is the trajectory. Dunkin has doubled its same-store sales growth in two quarters, up from 2.7 percent to 4.7 percent, while Starbucks has been consistently good. Its growth is accelerating.

So what's the bottom line?

"The coffee market is red hot right now and it looks like Dunkin Donuts will be the cheapest way to play it once the company comes public," Cramer said. "So if you like what you see, then try to get some shares in the IPO."

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