Krispy Kreme, Inc. (DNUT) stock surged 40% on this week after the company announced an extension to its partnership with McDonald’s Corporation (MCD) to sell its doughnuts at McDonald’s locations nationwide. This partnership is likely to boost the accessibility of Krispy Kreme products given that McDonald’s operates more than 13,500 restaurants in the United States. In comparison, Krispy Kreme currently operates around 360 stores in the country. If successful, the two companies may explore potential international expansion opportunities in the long term as well.

How Will It Work?

Under the newly extended partnership, starting in mid-2024, Krispy Kreme will deliver three of its most popular doughnuts to partnering McDonald’s outlets daily. These doughnuts will be available to purchase individually or in a box of six. The products will be available at McDonald’s stores throughout the day until stocks last.  

After rolling out the initial phase of this partnership in the second half of this year, Krispy Kreme expects its doughnuts to be available at McDonald’s locations nationwide by the end of 2026. This partnership comes after Krispy Kreme’s products were piloted at 160 McDonald’s last year. According to Tariq Hassan, the U.S. Chief Marketing Officer of McDonald’s, the customer response to this pilot run was overwhelmingly positive.

What Investors Need To Know

Krispy Kreme stock, even on the back of a lackluster performance in the past 12 months, is still valued at a forward P/E of 53, which suggests the company is not cheaply valued. For context, the consumer discretionary sector is valued at a forward P/E of just 16 today. The current valuation seems to incorporate years of future growth, which makes investing in the company a risky bet today. Truist Securities analyst Bill Chappell agrees as he reiterated his hold rating for the company and assigned a price target of $13 after digesting the details of the new partnership with McDonald’s. According to the analyst, investors should wait for cooler stock prices before investing in Krispy Kreme. JPMorgan and Capital One Financial analysts also maintain a hold rating on the company primarily because of valuation concerns.

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