Krispy Kreme Doughnuts (KKD) has more than doubled since the start of this year and tripled in the past 12 months, but its sweet glazed treats will be in such demand that the stock has even further gains ahead.
That's the view from Janney Montgomery Scott, which said the Winston-Salem, N.C., doughnut seller warrants a buy rating and a $26 price target. This is a nearly 63% boost from Janney's previous target of $16 and it's the highest price among Wall Street analysts surveyed by FactSet. The average is $21.19 and the range, excluding Janney, is $14.70 to $24.
Following the commentary, Krispy Kreme was up 7.2% to $22.95 in early trading Monday.
Upbeat same-store sales will help the company's results, according to the firm, whose second-quarter earnings expectation rose by a penny to 16 cents. The consensus estimate is 15 cents, with sales of $111.9 million, for the earnings report set to be released on Aug. 29.
First-quarter results were strong at Krispy Kreme, a former stock market darling that eventually collapsed to the single-digit doldrums before bouncing back, and included a bumped-up profit outlook for the year. In other words, despite the ever-growing volume of reporting on calorie counts and bad-for-you food, doughnuts appear to be hanging in there just fine. Krispy Kreme had sales of around $436 million in its latest fiscal year, while larger competitor Dunkin' Brands (DNKN) posted a top line of about $658 million.
However, the price surge in Krispy Kreme has also led to a short interest increase in the stock of late. Over the past month, the count of shares short has risen from 2.20 million to 2.37 million, and it was under 2 million at the middle of last month, according to Yahoo! Finance data.
Krispy Kreme's multiple has unquestionably gotten too rich for some investors. At a 31.1 forward price-to-earnings ratio, it exceeds both Dunkin' Brands, with a 26, and its five-year average of 28.7. Janney's $26 target — a level 21% above Friday's close — implies a 40 P/E on the expected earnings for the next 12 months.
At its current price, Krispy Kreme has jumped 140.6% in 2013 and 257% going back one year on the calendar, putting it at its best point in years.