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Investing.com -- JPMorgan downgraded shares of Krispy Kreme to Underweight from Neutral, citing limited visibility over the company’s proposed turnaround and declining underlying U.S. business trends.
The analysts said in a note that they continue “to not publish a price target,” highlighting the stock has fallen from its July 2021 IPO price of $17 to around $3.73 as of August 26, with major insider holdings concentrated among five investors, including previous take-private backer JAB.
JPMorgan pointed to the company’s recent profitability hit stemming from costs associated with a now-cancelled direct-to-door (DFD) rollout to support McDonald’s and other national accounts.
“This disruption led to the company being in survivor mode, including the sale of various store assets around the world and an attempted shift to 3P delivery to reduce costs and operational complexity,” the analysts said.
Execution risk is said to remain high, particularly in refranchising international assets, while U.S. organic revenue continues to decline amid pricing pressures and growing competition.
JPMorgan also warned that “the underlying Ebitda profile for the company remains at risk of decline in addition to these non-recurring charges that roll off over time.”
The report also noted operational challenges with fresh product delivery. “Delivered fresh daily comes with a significant daily last-mile delivery cost…average frequency of fresh doughnut consumption remains at 2-2.5x and 4-6x for loyal/heavy users annually,” JPMorgan said.
JPMorgan suggested that Krispy Kreme could benefit from a strategic owner to unlock value and provide balance sheet flexibility, potentially through longer shelf-stable products that could support a capital-light licensing strategy.