DJ Krispy Kreme Up -3: Analyst Gives Stock Sell Rating (AGAIN ?!!...hehe)
Dubbing Krispy Kreme's stock as "momentum and event-driven," Greg Schroeder,
an analyst with Fulcrum Global Partners, said "near-term events have been
played out and the stock will now take a breather."
Schroeder started to track the stock Monday with a sell rating, citing its
"unsustainable valuation" and the company's "slowing earnings momentum".
The company's shares have risen 150% since early April and are trading at 81
times forward earnings.
"In the last several years, few consumer growth companies have sustained
forward P/E multiples of 40 to 50 times for extended periods," he said, "let
alone an 81 times multiple."
Based on his valuation of Krispy Kreme's North American businesses,
Schroeder said a fair price for the stock is $20. He said the company may
be able to expand its North American retail business to 600 franchise and
100 company stores by fiscal 2009. That number of stores would generate $2.8
billion in annual sales. Krispy Kreme now has 175 stores.
Although Krispy Kreme has had double-digit same-store growth over the past
eight quarters, the analyst said he expects the momentum to end this quarter
as the growth rate decelerates to "high single-digits".
Besides, rising wheat prices are also pressuring margins, Schroeder said,
adding that although its management has said wheat supplies already have
been locked in for the rest of the year.
Still, the analyst expects Krispy Kreme to earn 43 cents a share for its
fiscal 2002, four cents above analysts' consensus estimates. "First Call
consensus reflects company guidance that has proved to be
ultra-conservative," Schroeder said.
Expecting modest earnings surprises to continue this year, Schroeder said,
however, the company's recent stock splits (both 2-for-1) will reduce the
"magnitude of EPS upside surprise going forward."
Schroeder said he expects Krispy Kreme's overseas expansion to come in the
next 12 to 24 months, and said the company will open stores in Japan and the
United Kingdom first.
"High initial investments to enter unproven international markets might be
perceived as enhancing risk near term," he said.
(MORE) DOW JONES NEWS 06-18-01
01:57 PM
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