Starbucks Downgraded - Short Thesis Playing Out

Andy Barish one of the best restaurant analysts who resides at Bank of America (BAC) downgraded Starbucks (SBUX) to a sell early this morning. Barish places a $23.00 price target for the coffee themed quick service restaurant which closed at $27.69 yesterday. Supporting his call he cites: slowing growth; EPS / margin / same store sales risk to the downside; and, a contraction of the earnings multiple. BAC 2008 EPS estimate for SBUX is $1.02 versus consensus of $1.06. When initiating my recent short in SBUX I also came to the conclusion that growth was slowing, that earnings estimates will soon be reduced and that the PE had further to decline. It is nice to be in Barish’s company. Expect Barish’s peers to follow his lead in cutting EPS and price targets for SBUX.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BAC and short shares of SBUX --- although positions can change at any time.

Opportunity in First Israel Fund

The First Israel Fund (ISL) is off nearly 6% in above average volume. The sell-off eliminates the 4% premium that ISL had to its NAV and puts it slightly back into discount. However, the Israeli stock indexes were only off about ½% on Thursday and the markets are closed in Eretz Yisrael on Fridays and Saturday (Yom Shabbat). The largest holding in ISL is Teva Pharmaceuticals (TEVA). TEVA comprises about 10% of ISL holdings. TEVA received some good news today when it received a favorable court ruling allowing the company to produce a generic form of Wyeth’s (WYE) Protonix prescription heartburn medication. TEVA is off about 2/3% today and if the market was not weak I believe it would be trading higher. WYE is falling over 3%. Today is another great example of the cuffs not matching the collars and you have a nice opportunity to pick up ISL. Shabbat Shalom to all.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of ISL --- although positions can change at any time.