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On Friday, Evercore ISI adjusted its outlook for Krispy Kreme (NASDAQ:DNUT) shares, setting a new price target of $3, down from the previous $9, while maintaining an In Line rating. The revision comes amid a challenging period for the company, whose stock has declined over 74% in the past year to $3.26. According to InvestingPro data, the stock’s RSI suggests oversold conditions, with the shares trading significantly below their 52-week high of $13.25. The revision comes as Evercore ISI analysts recalibrate their expectations for the company’s future earnings before interest, taxes, depreciation, and amortization (EBITDA).
The analysts cited several reasons for the adjustment, including a 20% reduction in estimated EBITDA for 2025 and 2026. This decrease reflects concerns about the delayed rollout of Krispy Kreme products in McDonald’s (NYSE:MCD) locations and uncertainties around the profitability of this venture. Additionally, the lack of anticipated margin growth from Krispy Kreme’s US Hub & Spoke model and persisting weakness in US retail shops, which account for roughly 30% of the company’s US segment, contributed to the revised target.
In response to these challenges, Krispy Kreme is shifting towards a third-party distribution model to help achieve its goal of expanding EBITDA margins through increased US delivered fresh daily (DFD) points of access. While the details of the company’s growth strategy remain unclear, the current focus is on improving cash flow, with a projected free cash flow (FCF) of negative $80 million in 2025, reducing debt to a leverage ratio of 6.1 times, and enhancing productivity.
The new price target of $3 is based on an 8x multiple of the firm’s revised 2026 EBITDA forecast of $170 million, which represents a 15% year-over-year increase. This projection stands in contrast to a consensus estimate of $225 million. As the market digests this information, investors will be watching Krispy Kreme’s strategic moves and financial performance closely.
In other recent news, Krispy Kreme reported its first-quarter 2025 earnings, revealing a miss on earnings per share (EPS) expectations, with an adjusted EPS of negative $0.05, falling below the forecast of negative $0.04. The company’s revenue reached $375.2 million, slightly under the expected $385.11 million. The company has also withdrawn its full-year outlook, citing ongoing uncertainties, and plans to focus on operational improvements and international expansion. In a separate development, Truist Securities downgraded Krispy Kreme’s stock from Buy to Hold, expressing concerns over the company’s recent performance and strategic execution. The downgrade reflects a shift in sentiment, as Truist had previously rated the company as a Buy. The firm has also decided to withdraw its price target for Krispy Kreme’s shares, opting for a cautious wait-and-see approach. Investors will be closely watching Krispy Kreme’s next moves to address these challenges and stabilize its operations.
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