NEW BEARISH Plays
Dunkin' Brands Group - DNKN - close: 40.54 change: -0.91
Stop Loss: 41.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 27, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 1.6 million
New Positions: Yes, see below
Many of the restaurant stocks have been struggling in recent months.
DNKN is a good example. Shares are down -4.9% year to date but DNKN is down -28% from its July 2015 highs.
DNKN is part of the services sector. According to the company,
"With more than 19,000 points of distribution in nearly 60 countries worldwide, Dunkin' Brands Group, Inc. (DNKN) is one of the world's leading franchisors of quick service restaurants (QSR) serving hot and cold coffee and baked goods, as well as hard-serve ice cream. At the end of the third quarter 2015, Dunkin' Brands' nearly 100 percent franchised business model included more than 11,500 Dunkin' Donuts restaurants and more than 7,600 Baskin-Robbins restaurants. Dunkin' Brands Group, Inc. is headquartered in Canton, Mass."
With DNKN down almost -30% from its 52-week highs you might think earnings are terrible. However, the company has been beating estimates. Their last three quarterly reports all came in above expectations with DNKN beating on both the top and bottom line. I will point out that their most recent report, announced October 22nd, was after the company had lowered their guidance.
That big drop on the daily chart was the market's reaction to DNKN's analyst day, when the company lowered their full-year guidance.
Earnings definitely seemed to slow down.
Their Q3 earnings rose +6% from a year ago while revenues rose +9%. The company is struggling with slowing same-store sales. System wide DNKN said their comparable store sales rose +2.8% in Q3. That's down from +5.7% a year ago and from +5.2% the prior quarter.
Their domestic Baskin-Robbins business has been healthy but internationally their ice-cream sales have slowed. Meanwhile most of their business is the donut-based Dunkin franchise. DNKN is facing a very crowded field of intense competition in the breakfast category. It doesn't help that consumer trends are changing toward healthier options.
Technically DNKN is in a bear market. Adding to the down trend has been a couple of analyst downgrades in recent weeks.
The oversold bounce from last week's lows just failed under a new trend of lower highs. More aggressive investors may want to launch bearish positions right here at current levels. We are suggesting a trigger at $39.25 as an entry point.
Trigger @ $39.25
- Suggested Positions -
Short DNKN stock @ $39.25
- (or for more adventurous traders, try this option) -
Buy the JAN $40 PUT (DNKN160115P40) current ask $1.85
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike