DNKN: TRADE UPDATE

12/19/11 10:52AM EST

Dunkin’ Brands was shorted moments ago in the Hedgeye Virtual Portfolio.  The stock is trading higher today.  Our fundamental view on the stock remains bearish despite positive sell-side research on the name being published last week.

Dunkin’ bounced off its 12/14 low, buoyed by positive sell-side research reports and an investor presentation released by the company.  In our view, the main issue with the company's strategy remains the same: a franchised business like Dunkin’ Donuts needs to accelerate unit growth dramatically in order to meet long term EPS targets.  Neither the sell-side research nor the company release of last week provided any incremental disclosure around the company’s backlog of new unit openings.  Comps present headline risk to our short thesis but we see this metric as being significantly less relevant than new unit openings for Dunkin’ going forward.  As we wrote on 11/29, “WHAT DOES DNKN RUN ON?”, the investor relations section of the Dunkin’ Brands website provides scant evidence of the backlog that we believe will be required to ramp up unit growth sufficiently (to 500 annually from 220-240 guidance for FY2011).

Per Keith’s quantitative model, DNKN’s TRADE line of resistance is currently at $25.43 and the TREND line of resistance is $26.97.

DNKN: TRADE UPDATE - dnkn levels

Howard Penney

Managing Director

Rory Green

Analyst

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