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On June 10, 2024, Krispy Kreme’s stock experienced a notable increase, rising by 6.5% following an upgrade by Truist analysts, who elevated the stock rating to a ‘buy’. This positive shift in perception is attributed to the upcoming partnership between Krispy Kreme and McDonald’s, which is projected to significantly enhance Krispy Kreme’s market presence and revenue.
Key Details
The surge in Krispy Kreme’s stock price came as analyst Bill Chappell from Truist revised the 12-month price target for the company’s shares, raising it from $13 to $15. This adjustment followed the analysts’ belief that the potential of the forthcoming deal with McDonald’s has been underestimated by investors. On the morning of the announcement, Krispy Kreme shares climbed to just over $11.30, marking their highest level since the initial announcement of the partnership in March. Despite this rise, the shares had previously traded above $17 each upon the partnership’s first announcement but later dipped to their lowest point of the year in the subsequent months.
Chappell expressed confidence that the collaboration with McDonald’s would stimulate revenue growth for Krispy Kreme’s traditional business segments in the coming quarters. He emphasized that the market’s skepticism towards the partnership’s potential might be misplaced, suggesting a brighter outlook for the company’s financial future.
Recent Performance and Market Conditions
Despite the recent uptick, Krispy Kreme’s shares have faced a challenging year, with a year-to-date decline of approximately 25%. The stock hit a low of $9.98 in May, underscoring the volatility and market uncertainties that the company has navigated.
Interestingly, Truist’s decision to upgrade Krispy Kreme’s stock rating also factored in the current trends in American dietary habits. The report acknowledged the country’s increasing emphasis on healthy eating and weight management, evidenced by the soaring popularity of weight loss drugs like Ozempic and Wegovy. However, Chappell noted that while there is a growing desire to eat healthily, there remains a strong consumer inclination towards indulgence in sweets. He argued that the initial impact of weight loss drugs on the snack industry has likely stabilized.
Background on the Krispy Kreme-McDonald’s Partnership
In March, Krispy Kreme announced a strategic initiative to begin selling its well-loved doughnuts at McDonald’s restaurants later in the year. This partnership aims to have Krispy Kreme doughnuts available nationwide by the end of 2026. The initial offerings will include popular varieties such as glazed, chocolate iced with sprinkles, and chocolate creme-filled doughnuts, which will be delivered fresh daily to McDonald’s outlets. Customers will have the option to purchase these treats individually or in boxes of six.
The partnership was first piloted at 160 McDonald’s locations in the Lexington and Louisville regions of Kentucky. According to Krispy Kreme, the trial phase saw consumer excitement and demand surpass expectations, paving the way for a broader rollout. This expansion will significantly increase Krispy Kreme’s availability, potentially doubling the number of locations where their products are sold.
Expansion and Market Reach
Currently, Krispy Kreme operates in 41 states across the United States. Despite this broad reach, the brand is often perceived as a Southern staple, having been founded in North Carolina. Some states, such as New Mexico and West Virginia, have only a few Krispy Kreme stores. The collaboration with McDonald’s, which boasts approximately 14,300 locations nationwide, will dramatically extend Krispy Kreme’s reach. The Truist analysts drew parallels between Krispy Kreme’s potential growth trajectory and that of Chick-fil-A, a chain that once had a limited regional presence but achieved significant national success upon expanding.
Analyst Perspective
It is noteworthy that the same Truist analyst, Bill Chappell, who upgraded Krispy Kreme’s stock, had previously downgraded it last October. The downgrade was primarily due to concerns about the potential impact of emerging weight loss and diabetes medications on the food industry. At that time, Chappell downgraded the stock from a ‘buy’ to a ‘hold’ and reduced the price target from $20 to $13, citing the uncertainty surrounding the long-term effects of these medications on consumer eating habits.
Future Outlook
The revised outlook and subsequent upgrade by Truist analysts indicate a renewed confidence in Krispy Kreme’s growth strategy and its ability to leverage the upcoming partnership with McDonald’s. This collaboration is expected to not only boost Krispy Kreme’s visibility but also drive significant revenue growth by tapping into McDonald’s extensive customer base and nationwide presence.
As the partnership progresses, it will be critical to monitor consumer response and the financial performance of both Krispy Kreme and McDonald’s. The expansion of Krispy Kreme products into McDonald’s locations could serve as a case study in successful strategic partnerships within the food industry, illustrating how established brands can collaborate to enhance their market position and achieve mutual growth objectives.
In summary, the recent upgrade of Krispy Kreme’s stock rating by Truist analysts and the subsequent rise in share prices underscore the anticipated benefits of the forthcoming partnership with McDonald’s. This strategic move is set to significantly enhance Krispy Kreme’s market presence and drive revenue growth, positioning the company for a promising future in the competitive landscape of the food and beverage industry.
