Chart of the Day – $DNKN: Donuts, Is There Anything They Can’t Do?

by Dan January 13, 2015 12:35 pm • Chart of the Day• Commentary

While a large contingency of the investment public is fascinated by the it stock of the day, I usually find myself trying to figure out the potential for a resurrection of prior darlings.  Of late in the consumer space, once loved high valuation/growth stocks like Lululemmon (LULU) and Whole Foods (WFM) have seen a renaissance, up 70% and 40% respectively from last year’s lows. The stocks had become washed out as they suffered from a combination of overzealous expectations, rich valuation and poor execution.

Another such consumer stock that had a big following and rich valuation but seemed to die in the eyes of investors in 2014 was Dunkin Brands (DNKN), which ended the year with a thud in Mid December lowering guidance due to weak consumer demand. DNKN is surging today more than 5% on positive comments made by the CEO on CNBC this morning:

Importantly, the stock is filling in the gap from mid December:

DNKN 1yr chart from Bloomberg
DNKN 1yr chart from Bloomberg

And investors are snapping up calls.  As of noon, total options volume is 10x average daily, with 95% of the volume in calls.  The largest block was a buy of 7,000 June 50 calls for 1.50 to open when the stock was $45.21, while the most active strike is the March 47.50 calls, with a total of 13,000 trading with the largest block of that strike a buy of 3800 for 1.25 when the stock was $45.13.

This could be an interesting play from the long side. I wouldn’t chase it here but if it came back in towards $44/45 it could make sense to position into the Feb 5th earnings event.