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Krispy Kreme Stock: Wall Street Sees 47% Upside

Krispy Kreme stock went public in July and has fallen 16% from the IPO price. But analysts believe that the stock is undervalued and has upside potential. Wall Street Memes chimes in on DNUT.

Doughnut and coffeehouse chain Krispy Kreme  (DNUT) - Get Krispy Kreme Report has trended a few times on the main online discussion boards after recently going public. Despite having fallen 35% from peak to trough and 16% from the IPO price, Wall Street believes that the selloff is irrational and that shares have 44% upside potential.

Figure 1: Krispy Kreme doughnuts.

Figure 1: Krispy Kreme doughnuts.

Today, Wall Street Memes takes a closer look at the increasingly popular Krispy Kreme stock.

Background and financials

The North Carolina-based doughnut and coffee chain was founded in 1937. It went public for the first time in 2000 under ticker KREM. Krispy Kreme debuted on the NASDAQ and, in 2001, switched to the NYSE under ticker KKD.

The company went through tough times in the 2000s, after being accused of channel stuffing by franchises and illicit accounting activities. In 2005, Krispy Kreme executed on a turnaround plan to avoid bankruptcy by closing several stores.

Krispy Kreme was taken private by a German investment firm that purchased it for $1.3 billion in 2016. In July 2021, the company went public once again with an IPO price of $17, and shares reached a peak price of around $21 on the first day of trading.

Regarding fundamentals, the doughnut maker has been delivering decent results. In the second quarter, Krispy Kreme expanded its hub and spoke model from 8,275 global points of access in 2020 to 9,575. Organic net revenue has risen 23% compared to the same period a year ago, and adjusted EBITDA margin has expanded from 12% in Q2 of the pandemic year to 15% now.

Figure 2: DNUT fiscal second quarter 2021 earnings highlights.

Figure 2: DNUT fiscal second quarter 2021 earnings highlights.

Wall Street is bullish

Consensus opinion on DNUT stock is bullish, especially after “sweet” second quarter results (pun certainly intended). Based on eleven reports, the stock has eight buy recommendations and three neutral ratings, with an average price target of $20.50 that represents 47% upside potential.

  • Citigroup analyst Sergio Matsumoto is one of the Krispy Kreme bulls setting a $24 price target, for impressive 68% upside potential. The analyst believes that long-term potential is underappreciated by investors today, especially due to "fast sales growth" alongside high-growth restaurants and improving profitability.
  • Morgan Stanley‘s John Glass is another very bullish DNUT analyst that sees more than 60% upside potential at a $23 price projection. He attributes this target to results that came ahead of estimates in the company's first post-IPO quarter. Also, the analyst was pleased with constructive full year guidance. For the long term, the analyst believes that key growth pillars are solid.
  • Truist analyst Bill Chappell recently lowered his price target on Krispy Kreme to $21 from $25, but he maintained a buy rating. According to him, in addition to having a "sweet start" as a publicly traded company, he was pleased by the Q2 earnings beat and 2021 guidance above consensus estimates. Regarding his recent price downgrade, he attributes it to broad market trends in the consumer space. However, he remained confident about Krispy Kreme’s growth opportunity for the long term.
  • Wells Fargo analyst Jon Tower is less bullish on Krispy Kreme, having set an equal weight rating and a $18 price target — still, suggesting 26% upside potential. Despite Krispy Kreme being an 84-year-old brand, the analyst believes that the company’s new strategy has "limited, bumpy track record”. Mr. Tower is skeptical that Krispy Kreme will execute on its guidance once shares trade at a higher multiple.

Wall Street Memes’ take

Krispy Kreme is just getting started as a public company once again. But considering recent results and long-term prospects, it is hard to contest Wall Street’s bullishness and disagree that the recent share price drop may prove to be temporary.

Twitter speaks

Krispy Kreme has dipped 35% from peak to trough, and now trades 16% below the IPO price. Is this a buying opportunity, or should investors avoid the “sugar crash”?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)