What Happened:
Shares of doughnut chain Krispy Kreme (NASDAQ:DNUT) jumped 6.1% in the morning session after Piper Sandler analyst upgraded the stock's rating from Neutral (Hold) to Overweight (Buy) and raised the price target from $14 to $20. The new price target represents a potential 30% upside from where shares traded when the upgrade was announced. The analyst weighed in on the recent McDonald's partnership, which was well received by markets, adding, "What the MCD partnership does for DNUT is gives management the confidence and ability to significantly increase its donut production capacity investments in the U.S., which it will now be able to do on an accelerated basis…MCD is obviously the catalyst but over a longer period of time this should benefit DNUT with other new and incremental DFD locations as well."
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What is the market telling us:
Krispy Kreme's shares are not very volatile than the market average and over the last year have had only 8 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 10 days ago, when the stock gained 36.5% after the company announced in a press release that it would provide fresh doughnuts daily at McDonald's restaurants nationwide (in the United States). According to the report, the Phased rollout will begin in the second half of 2024, with nationwide availability expected by the end of 2026. This is positive news for Krispy Kreme as the move should accelerate its sales velocity and eventually be accretive to revenue growth given the power of the McDonald's brand.
Krispy Kreme is up 2.3% since the beginning of the year, but at $15.06 per share it is still trading 13.2% below its 52-week high of $17.35 from March 2024. Investors who bought $1,000 worth of Krispy Kreme's shares at the IPO in June 2021 would now be looking at an investment worth $717.56.
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