Trueist raised the price of Krispy Kreme Inc. stock to buy and said it’s time to “indulge in an underappreciated story.” The stock went up 5.6% on Monday.
After giving the stock DNUT a buy rating instead of a hold rating, analysts raised their price target for the next 12 months from $13 to $15.
The team, led by Bill Chappell, recently went on a trip with Krispy Kreme’s CEO and finance head to meet with institutional clients. After those meetings, they were sure that most investors either don’t know about the story or get it wrong.
It was based on three things, they said in a note to clients.
Investors are underestimating the partnership with McDonald’s, the note said. “The partnership will accelerate revenue growth of legacy business in the next few quarters, well before the McDonald’s rollout is complete, and the current valuation fully reflects the GLP-1 overhang.”
GLP-1 is the name of a new group of drugs that have been approved to treat diabetes or help people lose weight. These drugs are very popular with customers and have helped the stocks of Novo Nordisk NOVO.B, +0.45% and Eli Lilly & Co. Inc. LLY, 0.95%, which are the leaders in the field.
When Krispy Kreme announced the deal with McDonald’s in March, its stock went up 40% in one day. By the end of 2026, its doughnuts will be sold at 12,000 McDonald’s locations. Based on a one-year test in two Kentucky markets, the company thinks that the rollout will add 80% to its current footprint and bring in about $320 million a year in the first year after rollout.
The business said that the partnership would give customers more than twice as many “points of access.” As it gets ready for the growth, it has been expanding its supply chain.
The stock has gone back down and is now trading below where it was before the news came out. Truist thinks that’s because investors aren’t sure about the predictions at a time when people are becoming more interested in eating healthy.
The analysts wrote, “We think the easiest way to get comfortable with the forecast is to just cut it in half.” “Let’s say it only adds 75% or 50% to the company’s revenue after the rollout. That’s still +25% or +17% to the company’s trailing 12-month U.S. base and +16% or +11% to its total TTM revenue base, respectively.”
The note said that if those assumptions are true, the company would easily hit its top-line goal of 9% to 11% annual sales growth. This is much higher than the rate of growth that most restaurants and packaged goods are expected to experience in the next few years.
They also said that the deal could help close the gap between Krispy Kreme’s U.S. and international margins. The international margins are higher because the hub-and-spoke routes are more mature and bring in twice as much money as U.S. hubs.
“We think that Chick-fil-A (Private) and, to a lesser extent, In-N-Out Burger (Private) are the best metaphors for the nationwide rollout of MCD.” “You have a well-liked product that has only been sold in certain parts of the country in the past,” the analysts wrote.
According to them, the rollout at McDonald’s could help Krispy Kreme become a national brand instead of just a Southern brand, even though it’s already in 41 states. That would make it possible for national grocery stores and big box stores to open.
The weight-loss drug craze is also having an effect on the business and packaged food in general, but the analysts wrote that Americans still like sweets.
“To be clear, low-sugar, healthy-living diets have been around for 30 years,” they wrote. However, industry surveys show that the $69 billion “U.S. indulgent snack market has grown at an 8.5% compound annual growth rate since 2018.”
There were 2,000 people who answered our “This is 30” survey. Of those, 60% were interested in GLP-1 weight loss drugs, but 85% had eaten a sweet snack in the last 48 hours. The note said, “Yes, we do like our sweets.”
So far this year, Krispy Kreme stock has dropped 25%, while the S&P 500 SPX has gone up 12%.
