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Investing.com - JPMorgan downgraded Krispy Kreme (NASDAQ:DNUT) from Neutral to Underweight on Wednesday, citing high execution risks in the company’s proposed turnaround plan. This downgrade aligns with InvestingPro data showing the company’s weak financial health score of 1.31 out of 5, with two analysts recently revising earnings estimates downward.
The investment bank highlighted concerns about declining business trends and the duration risk associated with refranchising multiple international assets. JPMorgan did not publish a price target for the stock.
Krispy Kreme shares have significantly underperformed since the company’s July 2021 IPO at $17, falling to approximately $2.60 before settling at $3.73 as of Tuesday’s close.
The research note pointed to the company’s concerning debt levels, with net leverage tracking at approximately 8.5x (including structured payables) or about 7.5x as reported. The current equity market cap of approximately $650 million is matched with over $1 billion in net debt.
JPMorgan also noted that only five insiders hold approximately 48% of the company, with previous take-private investor JAB controlling about 43%, while underlying U.S. business trends continue to decline amid accumulated pricing and growing category competition.
In other recent news, Krispy Kreme reported its second-quarter earnings for 2025, revealing a notable shortfall in earnings per share (EPS) expectations. The company posted an EPS of -$0.15, significantly missing the forecasted -$0.04, marking a 275% surprise below expectations. Despite this, revenue slightly exceeded projections, reaching $379.8 million compared to the anticipated $378.66 million. In addition to the earnings report, Krispy Kreme is undergoing a strategic shift following the termination of its partnership with McDonald’s. Morgan Stanley has reiterated its Underweight rating on Krispy Kreme, maintaining a price target of $2.50. The firm highlights uncertainty tied to the company’s efforts to free up cash, which may include refranchising, cost reductions, and reevaluating capital expenditures. Krispy Kreme was free cash flow negative in the second quarter, with proceeds from Insomnia Cookies preventing greater borrowing. These developments reflect the ongoing challenges and strategic adjustments facing Krispy Kreme.
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