Longbow Says It's Time For Doughnuts -- Krispy Kreme Stock Is A Buy

In a new report, Longbow Research analyst Alton Stump explained why he believes now is a great time to buy shares of Krispy Kreme.

Stump shared his belief that the company has the potential for major national expansion in coming years.

Laying The Groundwork

Krispy Kreme management has been slow to push store builds over the past couple of years, but Stump believes that there is good reason for the slow pace of expansion.

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“Management needed to install upgraded technology especially at the store level before ramping up builds,” he explained.

Stump also believes that management is right to take time to perfect its new small-store model before accelerating its store growth beginning in 2016.

Expansion Potential

Stump believes that Krispy Kreme is unique in the sense that it has national brand recognition with relatively few store locations. In the next 10 years, he believes that Krispy Kreme can expand its number of locations from about 285 to more than 1,500 stores.

EBIT margins at the news stores should also easily exceed the 4.0 percent margins that its stores currently generate.

Finally, with no debt on its balance sheet and strong cash flows, the company is financially well positioned to take on a large-scale expansion initiative.

Outlook

Longbow maintains its Buy rating on Krispy Kreme and its $23 target for the stock.

The firm projects fiscal 2016 EPS of $0.80 and fiscal 2017 EPS of $0.96.

Disclosure: The author holds no position in the stocks mentioned.