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On Wednesday, Morgan Stanley (NYSE:MS) analysts downgraded Krispy Kreme (NASDAQ:DNUT) shares, moving the rating from Equalweight to Underweight, and slashed the price target to $6.00 from the previous $12.00. The downgrade follows a significant drop in the company’s stock value, which fell 22% on the same day. According to InvestingPro data, the stock has declined over 35% in the past six months, with its current price showing significant distance from its 52-week high of $17.84.
The decision by the analysts comes in response to Krispy Kreme’s latest guidance for 2025, which fell short of market expectations. Despite the lower projections, which might suggest a conservative outlook, analysts at Morgan Stanley expressed continued concerns over the company’s ability to meet its targets, citing past challenges in this area. InvestingPro analysis indicates the company operates with a significant debt burden, with short-term obligations exceeding liquid assets, as reflected in a current ratio of 0.36.
Additionally, a recent cybersecurity incident at Krispy Kreme has caused some immediate disruption in its business operations. However, the analysts’ concerns extend beyond the temporary effects of this incident. They are closely monitoring broader demand indicators and the company’s strategies to address them. The analysts emphasized that frequent changes in various aspects of Krispy Kreme’s business strategy have led to their cautious stance.
The report by Morgan Stanley suggests that until there is clearer evidence of sustainable demand growth drivers, particularly in the U.S. market, the firm will maintain a relative Underweight position in its coverage of Krispy Kreme. This move indicates a wait-and-see approach as the analysts look for more concrete signs of stability and growth potential in the company’s performance.
In other recent news, Krispy Kreme reported its fourth-quarter 2024 earnings, which fell short of expectations. The company posted an earnings per share (EPS) of $0.01, significantly lower than the projected $0.10, while revenue reached $404 million, missing the forecasted $416.09 million. Despite these challenges, Krispy Kreme experienced a 1.8% organic revenue growth, even as a cybersecurity incident negatively impacted revenue by an estimated $10 million. In terms of future guidance, Krispy Kreme anticipates net revenue between $1,550 million and $1,650 million for 2025, with an expected organic revenue growth of 5-7%.
Truist Securities recently adjusted its outlook on Krispy Kreme, lowering the price target to $12 from $15 while maintaining a Buy rating. The revision comes after the company’s fourth-quarter performance, which met estimates excluding the cyber incident’s impact. Truist noted that the market reaction doesn’t fully reflect Krispy Kreme’s potential, highlighting the company’s ongoing expansion plans and partnerships, such as its collaboration with McDonald’s (NYSE:MCD), expected to reach approximately 6,000 locations by the end of 2025.
Krispy Kreme’s strategic initiatives include expanding distribution partnerships with major retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT), as well as exploring international refranchising opportunities. The company aims to continue its U.S. expansion and improve operational efficiencies through its hub and spoke model. Despite the recent earnings miss, Krispy Kreme remains focused on leveraging its iconic brand and optimizing its business operations for future growth.
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