Krispy Kreme stock jumped almost 10% when markets opened Friday, after Piper Sandler gave the doughnut maker two thumbs up for its new partnership with McDonald’s.
The two companies announced last week that they will join forces to offer Krispy Kreme doughnuts at McDonald’s locations across the U.S. starting later this year, with the goal of getting the doughnuts at most of the fast food chain’s 13,500 U.S. locations by the end of 2026.
The partnership is already bringing the Charlotte, North Carolina-based doughnut maker some sweet news. Investment banking firm Piper Sandler upgraded Krispy Kreme stock — which trades under the ticker DNUT — from Neutral to Overweight on Friday. Analyst Brian Mullan called the partnership a “game changer,” noting that it could bring a positive change in the company’s narrative, Seeking Alpha reports.
The firm also raised Krispy Kreme’s price target to $20 within the next 12 months, up from the previous $14, Seeking Alpha reports. This new price target is a base-case scenario, not an overly optimistic “bull case,” the firm said.
“What the [McDonald’s] partnership does for [Krispy Kreme] is gives management the confidence and ability to significantly increase its donut production capacity investments in the U.S. which it will now be able to do on an accelerated basis,” Mullan said. He added that while McDonald’s is “obviously the catalyst,” over a longer period of time the partnership will benefit Krispy Kreme with new “delivered fresh daily” door locations as well.
Krispy Kreme stock had given back some of the early gains shortly after markets opened to trade up 6%.
The partnership is part of the doughnut chain’s efforts to improve its reputation with consumers by delivering fresh doughnuts to all its locations. Krispy Kreme CFO Joshua Charlesworth told investors in 2021 that 100% of its doughnuts are fresh daily, up from 38% a year earlier. Krispy Kreme’s reputation took a hit when it began selling doughnut at grocery and convenience stores, where the quality was not always as high as at its own stores.
Charlesworth said last week that Krispy Kreme’s partnership with McDonald’s accelerates the development of the “delivered fresh daily channel” to keep up these efforts. Krispy Kreme stock closed up more than 39% on the day the partnership was announced — its biggest single day climb since it went public in July 2021, Bloomberg reports.
Piper Sandler said the newly established partnership could be a “a pivotal moment for the doughnut company’s business,” according to Investing.com, with the upgrade and adjusted price target showing improved confidence that Krispy Kreme will leverage the partnership to grow and improve its market position.