DNUT stock creates buying opportunities after a pullback

Krispy Kreme Inc. NASDAQ:DNUT is world famous for its glazed donuts which can be purchased fresh through its stores or grocery stores and kiosks. Shares of the retail/wholesale company skyrocketed 39% on news of its sweet partnership with the fast food giant McDonald’s Co. NYSE: MCD. Shares have since retreated from their frenetic peak at $17.84, offering a potential entry opportunity for patient investors looking to get in.

How’s the rest of the business going?

Krispy Kreme remained afloat until the deal was announced. Despite the GLP-1 weight loss trend and the popularity of low-carb, low-sugar, high-protein, high-fat diets like carnivore and keto, Krispy Kreme is still in capable of guaranteeing double-digit annual revenue growth. It reported fourth-quarter 2023 earnings per share of 9 cents, missing consensus estimates by 4 cents. Revenue rose 11.4% year-over-year to $450.9 million, beating $438.95 million. The growth driver is the growth of more access points to sell their fresh donuts outside of corporate and franchise stores. The company competes with Dunkin e Starbucks Co. NASDAQ: SBUX.

Mixed driving

Krispy Kreme offered mixed guidance for full-year 2024 EPS of 27 cents to 31 cents, below consensus estimates of 38 cents. Revenue is expected to grow 5% to 7% year over year to between $1.770 billion and $1.804 billion versus consensus estimates of $1.79 billion. Shares have proceeded to sell off 17% year to date after earnings.

Josh Charlesworth, CEO of Krispy Kreme, commented: “Our current strategy is to expand the business efficiently by adding new access points. There are now more than 14,100 places where you can purchase our fresh melt-in donuts in mouths in 39 countries. And our focus on operational excellence means we’re building a bigger, better Krispy Kreme business, and ultimately, we’re introducing our 2024 outlook with organic growth that should translate into an expansion of ‘adjusted EBITDA, reflecting our intent to drive increasingly profitable growth.’

Descending triangle daily breakout

The daily candlestick chart on DNUT illustrates a descending triangle breakout pattern. DNUT shares were languishing before the announcement of the partnership with MCD. DNUT peaked at the $15.33 swing on December 27, 2023. Shares continued to cascade lower as the descending trendline limited any rebound attempts, resulting in lower highs towards lower trendline support at flat bottom at $11.53.

Shares tested the ascending trend line at $12.59 during the previous announcement, triggering a gap to $14.34 as shares rose to a new high of $17.84. The daily relative strength index (RSI) rose to the 83 band, but has since fallen back to the 61 band as DNUT stock rebounded from the $14.34 gap filling area. The pullback support levels are at $14.34, $13.47, $12.59, and $11.53.

McDonald’s sweet deal

The expanded partnership agreement with McDonalds was announced on March 26, 2024. The partnership will begin with a soft launch starting in the third quarter of 2024. Under the agreement, three of Krispy Kreme’s most popular donut flavors will be prepared fresh and delivered to McDonald’s locations every day. Customers can purchase them individually or in set boxes containing 6 donuts. They can be purchased during breakfast hours throughout the day while supplies last. The rollout will continue gradually across the country until they are available nationwide by the end of 2026. This has the potential for daily deliveries to up to 13,000 McDonald’s locations. It also has the potential to expand internationally if successful. Check the heat map of the sector on MarketBeat.

How the partnership began

McDonald’s has begun testing Krispy Kreme donuts at 160 locations in Louisville and Lexington, Kentucky. The tests were very well received, generating exceptional demand that far exceeded expectations. Krispy Kreme expanded its supply chain in anticipation of the big launch, expanding its operations, adding new equipment and technology and beefing up field training to make daily deliveries. More details about the partnership are expected to be released in the weeks leading up to launch.

Piper Sandler says the deal is a game changer

Krispy Kreme shares were upgraded by Piper Sandler to Overweight from Neutral with a $20 price target. Analyst Brian Mullen expects the McDonald’s deal to boost McDonald’s-specific entry points of 1,000, 3,500 and 5,000 in the years 2024, 2025, and 2026, respectively. Mullen also predicts that Krispy Kreme will add an additional 800 freshly delivered (DFD) doors annually. Mullen estimates adding cumulative DFD growth of nearly 175% over the next 3 years.

Mullen commented, “McDonald’s is obviously the catalyst, but over a longer period of time, this should benefit Krispy Kreme with other new and incremental DFD locations as well.”

Krispy Kreme Analyst Ratings and Price Targets I’m on MarketBeat. The titles of Krispy Kreme’s competitors and competitors can be found with MarketBeat Stock Screener.

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