On Jul 2, 2013, Zacks Investment Research upgraded
Krispy Kreme Doughnut Inc.
) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Krispy Kreme has been witnessing rising estimates after the
completion of a strategic alliance and better-than-expected
On May 30, the company reported first-quarter 2014 adjusted
earnings of 20 cents per share, beating the Zacks Consensus
Estimate by 4 cents and the year-ago level by 6 cents. Earnings
were benefited by margin expansion.
Total revenue grew 11.2% on the back of substantial increases
at company-store, and domestic and international franchise
revenues. Higher traffic leading to an increase of 11.4% in
same-store sales provided the company a shot in the arm.
The strong first-quarter results and management's increasing
faith in the company's prospects led it to raise the fiscal 2014
earnings per share guidance to a range of 59 cents-63 cents from
53 cents-57 cents. This revised range implies a year-over-year
increase of around 26%-34%.
In Jun 2013, Krispy Kreme formed a joint venture with an
affiliate of Sun Holdings, LLC for re-franchising three
company-owned shops in Dallas, Texas. The deal is targeted to
enhance its domestic franchise expansion.
Franchising reduces the capital requirements of the company
and thereby, drives earnings per share and return on equity
(ROE). Alongside, free cash flow continues to grow, allowing
reinvestments for increasing brand recognition and enhancing
The Winston-Salem, NC-based company is geared to enter into
strategic alliances with several companies. As of Feb 2013, there
were nine Krispy Kreme franchise stores in Texas and the company
plans to add four more stores to the list in the future.
The Zacks Consensus Estimate for fiscal 2013 increased 8.7% to
62 cents per share as all the three estimates were revised higher
over the last 60 days. The current estimate is above the guidance
range provided by management. For fiscal 2014, all the estimates
were also revised higher over the same time frame, lifting the
Zacks Consensus Estimate by 4.4% to 71 cents per share.
Other Stocks to Consider
Others players in the same industry which look attractive
Ruth's Hospitality Group Inc.
) with a Zacks Rank #1 (Strong Buy), and
The AFC Enterprises Inc
Brinker International Inc.
), both with a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
BRINKER INTL (EAT): Free Stock Analysis
KRISPY KREME (KKD): Free Stock Analysis
RUTHS HOSPITLTY (RUTH): Free Stock Analysis
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