AP News

Krispy Kreme shares hit multi-year high


Krispy Kreme Doughnuts Inc.'s shares hit a multi-year high in trading Friday after Longbow analysts said the company's recovery is picking up steam and put a buy rating on its stock.

THE SPARK: Analysts Alton Stump and Philip Terpolilli said that Krispy Kreme is an appealing turnaround story and its shares are at an attractive price. They initiated coverage of the doughnut chain with a "Buy" rating and $15 target price.

THE BIG PICTURE: Krispy Kreme, based in Winston-Salem, N.C., is the second largest doughnut chain in the U.S. behind Dunkin' Donuts. It went public to great fanfare in 2000 and then nearly collapsed after rapid expansion and an SEC accounting investigation that lasted five years.

Krispy Kreme brought in new management, closed stores, lowered its debt and changed its business model to cut costs and improve profitability. Its financial performance and share price have been slowly but steadily improving since 2009.

THE ANALYSIS: The analyst said that Krispy Kreme has shown significant progress in revitalizing its top and bottom lines over the last couple of years.

Stump and Terpolilli said they expect solid growth from Krispy Kreme's established stores over the next two years and moderating declines internationally. However, they noted that the company's high-margin international business is one of the most attractive international new-store-growth profiles in the quick-service-industry sector. They also said there is particular potential for profit gains from its company-owned stores in the coming years.

"We are confident Krispy Kreme's new production and distribution strategy implemented over the last 3-4 years domestically will bear continued fruit in the form of impressive top- and bottom-line growth in coming years," they wrote in a research note.

The analysts also expressed confidence that Krispy Kreme's current management team is taking the company in the right direction.

SHARE ACTION: Shares jumped more than 9 percent to $11.02 by early afternoon. Its shares have not closed at a price near this level since 2007.


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