Krispy Kreme's Insomnia Divestiture May Not Boost Core Focus As Expected: Analyst Weighs In

Truist Securities analyst Bill Chappell reiterated a Buy rating on the shares of Krispy Kreme Inc DNUT with an unchanged price target of $20.

Yesterday, the company announced that it is seeking strategic alternatives for its Insomnia Cookies to "unlock shareholder value and focus on its core strategy of producing, selling and distributing fresh doughnuts daily."

Related: Krispy Kreme Considers Selling Insomnia Cookies Business For The Love Of Fresh Doughnuts

Insomnia operates over 250 small bakeries, mostly in college towns and urban centers, selling and delivering warm cookies in under 30 minutes.

The cookie brand expects to generate $230 million of sales in 2023, 13.5% of total sales for the company, noted the analyst.

Since Insomnia and the core Krispy Kreme are run separately, the analyst is not sure how divesting the business will meaningfully improve the focus on the core.

Also, Insomnia has been accretive to the DNUT's top line growth rate, added the analyst.

As with any growth stock, the analyst believes investors are much more focused on top line growth versus EPS or cash on hand, so it is not sure how a divestiture would "enhance shareholder value."

In the analyst's view, the best option for Insomnia would be to spin the business into a standalone public company.

However, with the rising investor concern about the impact of GLPs, the analyst does not believe the timing would be appropriate for a spin off.

Price Action: DNUT shares are trading higher by 1.32% at $12.68 on the last check Wednesday.