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- HSBC lowers its rating on Krispy Kreme (NASDAQ:DNUT) to Hold from Buy as it warns on a lack of upside drivers.
- Analyst Sorabh Daga: "Unlike other quick service restaurants which mostly operate on a franchise model, Krispy Kreme’s strategy of moving from a franchise model to company owned operations is weighing heavily on its balance sheet and hence on returns to the equity holders."
- There are also some structural issues with the Krispy Kreme (DNUT) offering that concern Daga.
- "With the IPO, 38% of the shares in DNUT were distributed to minority holders. This is larger than the float. Their lock-up period expires at year-end. While we highlighted this overhang as a possible risk in our initiation report, a mitigating solution has not emerged."
- After taking in all the factors, HSBC lowers its price target on DNUT to $14 from $25.
- Shares of Krispy Kreme are down 1.58% premarket to $13.70 vs. the post-IPO range of $12.83 to $21.69. The relative strength index on DNUT is below 50.