Krispy Kreme stock looks tastier than Dunkin'
But doughnut-craving investors should beware of empty calories.
Shares of both doughnut chains have surged more than 20% since the start of the year. Wall Street, though, has an average one-year price target of $9.03 on Krispy Kreme, about 12% above where it currently trades. Dunkin' shares are trading at $31.03, near the one-year $31.45 price target. Krispy Kreme is cheaper, too, trading at a price-to-earnings ratio of about 27 versus Dunkin's multiple which tops 80.
Both companies face tough challenges. Rising commodity prices are a threat to margins -- as are growing concerns in the U.S. about eating food with little-to-no nutritional value. That means that discounting will be needed.
Net income at Krispy Kreme in the latest quarter was $143.5 million, or $2.01 a share, as same-store sales surged 8.3%. The Winston-Salem, N.C., company also benefited from a tax benefit of $139.6 million. Its outlook for fiscal 2013 was 35 cents to 41 cents versus expectations of 35 cents. Revenues increased 11.4% to $403.2 million. In Fiscal 2013, Krispy Kreme plans to open five to 10 company stores, 10 to 15 domestic franchise stores, and about 75 international franchise stores.
Like Krispy Kreme, Dunkin Brands reversed a year-earlier loss. The Canton, Mass., company last month reported a fourth-quarter profit of $11.6 million, or 10 cents per share. Revenue for the quarter rose 12.5% to $168.5 million. Excluding one-time items, the company earned 30 cents a share, beating the 28-cent average estimate of Wall Street analysts. The problem for Dunkin' Donuts is same-store sales, which are expected to grow 3.5% to 4% at Dunkin' Donuts and remain flat or increase up to 2% at Baskin Robbins for 2012. To complicate matters, Dunkin' recently announced a secondary offering of up to 22 million shares, which will further dilute existing shareholders.
Given the issues affecting the two companies, both stocks should be avoided.
Jonathan Berr has gone a few months since eating a doughnut. He does not own shares of the companies listed here.
Copyright © 2014 Microsoft. All rights reserved.
The solid report comes a month after the retailer closed all of its Canadian operations.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.