Behind the Money

Goldman Says Run From Dunkin’ After Bringing it Public

In a rare and some would say refreshing call, a Goldman Sachsanalyst advised clients to sell shares in Dunkin’ Brands, the very company that the investment banking side of the firm brought public as a lead underwriter at the end of July.

The move comes after a 40-day window expired during which analysts are barred from issuing coverage on initial public offerings. The intention of the rule is to stop the research arm of a firm from pumping a stock just after its public debut.

Still, in one of those unwritten rules of Wall Street, it is rare for an analyst to speak so unkindly of a company the firm brought public, even after the 40-day grace period.

JPMorgan Chase , also an underwriter, initiated Dunkin’ Brands with an 'overweight' rating Tuesday. Morgan Stanley, Barclays and Bank of America Merrill Lynch are also book runners on the offering. Each of these three firms initiated the stock with a 'hold' rating.

Meanwhile Goldman Sachs analyst Michael Kelter pulled no punches in his note, writing that the stock was due for a 15 percent drop over the next 12 months as its long-term earnings growth is more likely in-line with a mature company such as McDonald’s or Yum! Brands .

Dunkin’ Brands “shares are up 65 percent from the initial $16-$18 IPO range, and now trade ahead of fair value,” wrote Kelter in the note. Because of its sensitivity to the economic cycle, “we see the potential for underlying Dunkin' US comps to decelerate and disappoint in the back half of 2011 and into 2012.”

Shares of the coffee chain jumped 47 percent on its July 28 debut as investors bet on faster domestic and international growth and overlooked the rather large debt load put on the quick-serve restaurant by its previous owners: private equity firms Bain Capital, Carlyle and Thomas Lee. Critics argue that the price range of the IPO should have been raised further given the monster debut in the stock.

Despite regulations and reforms put in place following the analyst ratings scandal that followed the burst of the tech bubble, numbers show analysts of Wall Street firms are still hesitant to put an outright 'sell' on shares of companies they have done, or potentially could do, investment banking.

Out of the 44 stocks since the start of 2010 that Goldman has both brought public as an investment bank and rated as a research shop, just this one—Dunkin’—has been initiated with a 'sell,' according to

With reporting by Danielle Kennedy

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