Krispy Kreme rises on profit growth prediction

Associated Press

NEW YORK (AP) — Shares of Krispy Kreme Doughnuts Inc. rose Friday, after a Wedbush analyst initiated coverage of the company with an "Outperform" rating, saying its continued growth both at home and overseas make it a sweet target for investors.

THE SPARK: Nick Setyan also set a $9 price target for the Winston-Salem, N.C.-based treat retailer, predicting that the combination of its rapid growth and improving sales will eventually boost its earnings.

THE BIG PICTURE: Krispy Kreme sells doughnuts through branded stores and wholesale. Recently, it has been pushing to expand its presence overseas and enter new markets.

In June, the company said it reached a deal with Citymax Hotels Pvt. Ltd. to develop 80 Krispy Kreme franchise stores over the next five years in India. Separately, it said it would open an additional 35 stores in India over the next five years through a deal with franchisee Bedrock Food Co.

In May, Krispy Kreme announced a first-quarter profit that topped Wall Street predictions and issued a better-than-expected profit outlook for the full year.

THE ANALYSIS: "We believe acceleration in domestic company and franchise unit development, driven by improved cash-on-cash returns combined with already industry-leading international growth, could result in sustained high-teens to low-20 percent earnings-per-share growth and an expanded valuation," Setyan wrote in a note to investors.

THE SHARES: Up 32 cents, or 4.9 percent, to $6.87 in afternoon trading, after peaking at $6.94 earlier in the day. Over the past 52 weeks, the company's shares have traded between $5.78 and $9.74.