Krispy Kreme Stock Up 6.5% on McDonald’s Partnership Upgrade

Krispy Kreme experienced a significant uptick in its stock value after Truist analysts upgraded it to a buy rating, citing undervaluation by investors who are underestimating the business potential of an upcoming collaboration with McDonald’s. This partnership will involve Krispy Kreme doughnuts being sold at numerous McDonald’s locations worldwide.

The stock rose by nearly 6.5% on Monday morning following the upgrade. Analyst Bill Chappell also increased Krispy Kreme’s 12-month price target from $13 to $15. The shares reached just over $11.30, their highest point since the announcement of the Krispy Kreme-McDonald’s partnership in March. (When the partnership was first revealed, shares were trading at over $17 each, but they later declined to their lowest point of the year.)

Chappell believes that the McDonald’s partnership will significantly boost the revenue growth of Krispy Kreme’s existing business in the coming quarters, and he feels that investors are overly doubtful about the plan. Despite this positive development, Krispy Kreme shares have decreased by approximately 25% year-to-date, dropping to as low as $9.98 in May.

An interesting factor that influenced Truist’s decision was America’s recent trend towards healthy eating and weight management, exemplified by the success of drugs like Ozempic and Wegovy. Despite this trend, Truist decided to move forward with the upgrade, acknowledging that while people are interested in eating healthy, they still have a penchant for sweets. Chappell stated in Monday’s note that he believes the impact of weight loss drugs on the snack industry has reached its peak.

Krispy Kreme announced in March its plan to start selling its doughnuts in McDonald’s later this year, with availability in stores nationwide expected by the end of 2026. Fresh glazed, chocolate iced with sprinkles, and chocolate creme-filled doughnuts will be delivered daily to McDonald’s restaurants, where they will be sold individually or in boxes of six. The initial trial at 160 McDonald’s locations in Kentucky’s Lexington and Louisville areas exceeded expectations in terms of consumer excitement and demand. This partnership will expand Krispy Kreme’s reach to twice as many locations as it is currently available.

While Krispy Kreme doughnuts are currently available in 41 states, the chain is predominantly considered a Southern one, having been founded in North Carolina. Some states, such as New Mexico and West Virginia, have only a few stores. McDonald’s, on the other hand, has approximately 14,300 locations across the United States. Truist analysts likened Krispy Kreme’s expansion to that of Chick-fil-A, which initially had a regional presence but achieved tremendous success upon national expansion.

It’s worth noting that the same Truist analyst who upgraded Krispy Kreme on Monday had downgraded the company’s rating last October, citing concerns about the potential impact of weight loss and diabetes drugs. Chappell had then downgraded the stock from a buy to a hold and reduced his price target from $20 to $13, stating that it was premature to predict the widespread impact of these drugs on food consumption.