Krispy Kreme Shares Up 6.5% After Analysts Upgrade Stock To Buy Over Upcoming McDonald’s Partnership
Krispy Kreme stock surged Monday after analysts from Truist turned upgraded the stock to buy and claimed investors are "undervaluing" the business potential of an upcoming deal with McDonald’s that will see the company's doughnuts sold at thousands of locations of the world's largest fast food chain.
Doughnuts are sold at a Krispy Kreme store on May 5, 2021 in Chicago, Illinois.
Shares of the stock were up almost 6.5% to Monday morning upon the upgrade, which also saw analyst Bill Chappell move Krispy Kreme's 12-month price target to $15 from $13.
Shares hit just over $11.30, their highest point since the Krispy Kreme-McDonald’s partnership was first announced in March (shares were trading at above $17 each upon the announcement but dipped to their lowest point all year months later).
Chappell said he thinks the McDonald's partnership will "accelerate revenue growth of legacy business" in the upcoming quarters and that investors are being overly skeptical of the plan.
Overall, Krispy Kreme shares are down roughly 25% year to date and dipped as low as $9.98 in May.
Truist said it had considered America's recent push toward healthy eating and weight management—as indicated by the sky-high success of drugs like Ozempic and Wegovy—in its upgrade, and moved forward anyway. "Yes, we want to eat healthy, but we like our sweets," Chappell wrote in Monday's note, adding that he thinks the impact of the introduction of weight loss drugs on the snack industry has run its course.
Krispy Kreme in March unveiled its plan to start selling its popular doughnuts in McDonald’s later this year and said they should be available in stores nationwide by the end of 2026. Glazed, chocolate iced with sprinkles and chocolate creme-filled doughnuts will be delivered fresh daily to McDonald's restaurants and be available either individually or in boxes of 6. The plan was first tested at 160 McDonald’s restaurants in the Lexington and Louisville areas in Kentucky, and Krispy Kreme said "consumer excitement and demand exceeded expectations." The partnership will make Krispy Kreme doughnuts available in twice as many places as they're currently sold.
- That’s how many states currently have Krispy Kreme doughnuts available, but the chain is largely seen as a Southern one (it was founded in North Carolina) and some states, like New Mexico and West Virginia, have only a few stores. McDonald's has roughly 14,300 locations in the United States. In the note, Trusit analysts compared Krispy Kreme to Chick-fil-A as a chain that was at one time only available in certain parts of the country but found massive success upon expansion.
The same Truist analyst that upgraded Krispy Kreme Monday downgraded the company's rating last October, citing the potential impact of weight loss and diabetes drugs. Chappell downgraded the stock from a buy to a hold and dropped his price target from $20 to $13. He said at the time that it was too soon to predict how widespread the impact of weight loss drugs on food consumption would be.