High Flying Coffee Stock on Pullback Watch


I like coffee. I drink a lot… every day.

What if you “Want Great Coffee Fast?” That’s the mantra implemented at Dunkin’ Brands (DNKN) by its new CEO, coffee warrior David Hoffman. His leadership has seen the stock gain 18 percent so far this year.

DNKN fell 1.89 percent to $74.58 today after getting downgraded to “sector perform” by RBC Capital. The analyst applauds Hoffman’s work on the turnaround, but says all the good news is priced in.

But is it? Today’s August retail sales report from the Census Bureau showed a strong gain for restaurants. The category continues to run well ahead of others like apparel and general merchandise.

DNKN’s earnings haven’t shown a significant slowdown, either. And press reports say its cost structure is still providing good returns. Bloomberg even identified the company as a potential takeover candidate.

Some short sellers have been betting against the name, saying restaurant companies that franchise out all their locations are overvalued. That’s caused wide discrepancy in stock performance between restaurant chains that own their own stores and those that use franchisees to operate their stores.

After standing in line at DNKN today for my regular order Extra Large Plain, it seemed to me that shorting DNKN this year should have scalded a few bears.

In the short term, chart watchers might see the potential for it to push a little lower toward the July and August peaks around $73. Let’s watch if it holds. And while we’re at it, let’s watch this often-neglected corner of the consumer space into year end.

Dunkin’ Brands (DNKN) chart with potential level and 20-day moving average.
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