Money & Markets Week Ahead for the week of September 13, 2021: I break down the upcoming Dutch Bros initial public offering (IPO) as this quick-service coffee company eyes expansion.
I also have some insights into another key inflation indicator.
Let’s see what to watch in the week ahead on Wall Street:
Dutch Bros IPO
After a bit of a dry spell, a few new IPOs are ready to price this week.
One jumped out to me because it’s in the business of getting America going every morning. I even frequented some of its locations while living in Idaho.
Dutch Bros Inc. is a regional drive-thru coffee chain based in Grants Pass, Oregon. It plans to price its IPO on Thursday and will trade on the New York Stock Exchange under the ticker symbol BROS.
What it is: Dutch Bros was founded in 1992. As of June 30, the company had 471 drive-thru coffee shops employing 7,876 people in 11 states, according to its S-1 filing. While 264 of those locations are franchises, Dutch Bros is focusing on company-operated shops for expansion in the future.
These small drive-thru shops focus on quick service of a variety of hot and cold drinks: coffee, espresso, energy drinks, lemonade, teas and even smoothies.
Dutch Bros thrived through 2020, increasing its revenue 37% to $327.4 million, according to its S-1 filing.
The IPO: The company plans to sell 21.1 million shares at a price range of $18 to $20 per share.
It hopes to raise $400 million with its IPO. At the midpoint of this range, Dutch Bros’ market value would sit around $3.3 billion, according to Renaissance Capital.
Bank of America Securities, J.P. Morgan, Barclays, Jefferies, Piper Sandler, William Blair and Baird are bookrunners on this deal.
The skinny: It’s tough to recommend an IPO right out of the gate, but Dutch Bros is one I would keep an eye on.
It is quickly expanding across some substantial markets on the West Coast and Texas. It added 53 locations in 2020 and plans to open 85 more by the end of this year.
There may be some growing pains as this expansion continues, but its business model of quick-service drive-thru coffee is solid, especially as more people get back to commuting. Not to mention its biggest competition (Starbucks and Dunkin’) are playing catch up in the drive-thru game.
I would put this IPO on my shortlist.
Data Dump: Consumer Price Index
Inflation has been a talking point throughout the COVID-19 pandemic and ensuing economic recovery. The pandemic ushered in an unprecedented fiscal and monetary response from governments around the world.
Now that a flood of new money has entered the economy through various stimulus efforts, consumers and investors alike want to know how inflation is shaping up.
The monthly U.S. Core Consumer Price Index (CPI) provides some insight. The U.S. Bureau of Labor Statistics will release August data on Tuesday.
The core index measures monthly price changes in goods and services, except for food and energy. The price changes are from the perspective of the consumer.
The Core CPI spiked in the months of April through June as the COVID-19 vaccine became more widely available and the economic recovery ramped up. Numbers cooled a bit in July, with a 0.3% increase in all items less food and energy.
Prices for these core items have increased 4.3% over the last 12 months ending July 2021.
The skinny: The Federal Reserve is calling this a period of “transitory” inflation, and it expects inflation to return to its 2% target in due time. But it’s hard to imagine that happening any time soon.
Economists project the Core CPI for August will be around 0.3% again, but the bottom line is these higher prices may be the new norm. The Core CPI has only been negative in four months over the last five years, and three of those months came during the height of the COVID-19 pandemic last summer when no one was spending money.
Prices increases may cool a bit in the coming months, but I wouldn’t expect things to get cheaper from here.
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out this week:
Oracle Corp. (NYSE: ORCL)
MaxCyte Inc. (Nasdaq: MXCT)
Mission Produce Inc. (Nasdaq: AVO)
Core & Main Inc. (NYSE: CNM)
Skillsoft Corp. (NYSE: SKIL)
JinkoSolar Holding Company Limited (NYSE: JKS)
Weber Inc. (NYSE: WEBR)
Cuisine Solutions Inc. (OTC: CUSI)
Fonar Corp. (Nasdaq: FONR)
Franklin Wireless Corp. (Nasdaq: FKWL)
Spectrum Group International Inc. (OTC: SPGZ)
Sears Holdings Corp. (OTC: SHLDQ)
Assistant Managing Editor, Money & Markets
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