Krispy Kreme’s (DNUT) stock should be devoured by traders headed into the company’s earnings on Feb. 22 as it’s just too darn cheap, says EvercoreISI restaurant analyst David Palmer.
“Despite a volatile environment, Krispy Kreme continues to execute and move ahead with its growth plans,” Palmer said in a new research note.
The veteran analyst listed several key considerations for a bull case on the stock:
“The company has bold goals for points of distribution based upon detailed analysis. The company is planning 10% annual growth in global points of access to 50k (10k today) with 10K+ planned in the U.S.
Krispy Kreme sees its sales per U.S. hub increasing by 25% by 2024. Specifically, the company expects sales per hub to go from $3.8M last twelve months in the third quarter with a target to reach $5 million by 2024 (EVRe $4.7M) as hub and spoke markets mature.
Consumers may not know what price to expect for a dozen Krispy Kreme donuts—and that is a good thing. Krispy Kreme donuts are often purchased for special occasions 2x-3x per year. Low purchase frequency and merchandising is resulting in low elasticities as prices increase on average 10%.
International markets such as the UK continue to be the pride of the company. Krispy Kreme expects sale per hub to go from $8.7 million to $10 million in 2024 (EVRe $9M).
The company expects Sweet Treats to be a major source of margin improvement. It expects mid-teens margins from Sweet Treats in addition to significantly higher distribution—with ACV [average value] expanding from 30% to 36% in 2022.”
A man walks past a Krispy Kreme “Hot Now” neon sign in Times Square in the Manhattan borough of New York City, New York, U.S., October 16, 2020. REUTERS/Carlo Allegri
Palmer has a $20.00 basis case price target — nearly 50% above current levels — on Krispy Kreme and an Outperform rating.
At $13.44, shares of the doughnut giant are trading below its July 2021 IPO price of $17. The stock hit a 52-week high of $21.69 not long after its trading debut.
The sell-off is despite pretty solid financial showings from the company,…