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On Wednesday, JPMorgan made a significant change to its outlook on Krispy Kreme (NASDAQ:DNUT) shares, downgrading the company’s stock rating from Overweight to Neutral. The adjustment follows a period of underperformance for the doughnut chain’s stock since its initial public offering in July 2021. According to InvestingPro data, the stock has declined over 72% in the past year, with a particularly sharp 26% drop just last week. The current analyst consensus recommendation stands at 2.6, indicating a mixed outlook from Wall Street.
The initial public offering price for Krispy Kreme was set at $17, but the stock has since plummeted to approximately $2.60. This decline has been attributed to several factors, including a strategic shift by the company. Krispy Kreme has decided to temporarily halt its US-wide rollout in McDonald’s (NYSE:MCD) locations, which was initially expected to reach 6,000 stores by Fiscal Year 2025 and nearly all 12,000 by Fiscal Year 2026. Currently, the rollout is live in about 2,400 McDonald’s stores. InvestingPro analysis reveals the company operates with a significant debt burden, with total debt reaching $1.46 billion and a concerning current ratio of 0.35.
The downgrade was further influenced by the concentration of ownership among a small group of insiders, with approximately 48% of Krispy Kreme’s shares held by just five insiders. This includes more than 43% ownership by JAB, the investment firm that previously took Krispy Kreme private.
JPMorgan’s analysis suggests that the company’s decision to pause its expansion strategy and focus on reducing debt while striving for profitable growth in an uncertain economic environment has introduced significant duration risk. This has led the firm to withdraw its price target for Krispy Kreme’s stock alongside the downgrade. While the company faces challenges, InvestingPro data shows analysts expect the company to return to profitability this year, with 13 additional exclusive ProTips available to subscribers for deeper insight into the company’s financial health.
The market will continue to observe how Krispy Kreme navigates these challenges and whether the company’s efforts to deleverage its balance sheet and achieve growth will eventually bear fruit. Meanwhile, investors are adjusting to the new rating as they assess the company’s future prospects.
In other recent news, Krispy Kreme reported its first-quarter 2025 earnings, revealing a miss on earnings per share (EPS) expectations and revenue forecasts. The company posted an adjusted EPS of negative $0.05, below the forecast of negative $0.04, and revenue of $375.2 million, slightly under the expected $385.11 million. Following the earnings announcement, Evercore ISI adjusted its outlook for Krispy Kreme, setting a new price target of $3, down from the previous $9, while maintaining an In Line rating. The revision was due to concerns about the delayed rollout of Krispy Kreme products in McDonald’s locations and uncertainties around profitability. Additionally, Truist Securities downgraded Krispy Kreme from Buy to Hold, citing concerns over the company’s recent performance and strategic execution. The downgrade reflects a shift in sentiment as Truist Securities withdrew its price target, indicating a wait-and-see approach. Investors will be watching Krispy Kreme’s strategic moves and financial performance closely in the upcoming quarters.
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