Editor's Note: Please note that our Restaurants team will send out a full report outlining our high-conviction short thesis next week. In the meantime, below is a brief summary of our thesis sent today by Hedgeye CEO Keith McCullough in Real-Time Alerts.
I'm looking for fresh ideas that are signaling immediate-term TRADE overbought within bearish intermediate-term TRENDs. Dunkin' Brands fits that profile.
Howard Penney put out a Best Ideas Black Book (Institutional Research Product) on DNKN last week (i.e. a best idea on the short side) and had the following to say about the brewing situation that must have insiders selling at Dunkin':
"Many may think that the DNKN slowing sales story has been told and it is all priced into the stock, but given the levitation in the stock price from mid-January we believe people may have forgotten too quickly. Management continues to seem disconnected from the business as they stretch the system into both value and premium offerings. All while believing that their franchisees “don’t necessarily look at it on a cash-on-cash return [basis].” It is preposterous to believe that these astute businessmen and women don’t look at their cash-on-cash return, why else would they be raising prices because of traffic deceleration? Simply put, the slowing of unit growth is still a threat because management hasn’t yet grasped the realities that their concept is facing."
Yeah, Howard - tell us what you really think!