A tale of 2 companies rising from near ashes

Dell and Krispy Kreme, both up more than 25%, share a rocky past and a curious future.

By TheStreet Staff Jan 18, 2013 2:41PM

Red Arrow Pointing Upward copyright Fotosearch, Fotosearch, Getty ImagesBy Jonathan Hellethestreet logor

 

It's a tale of two companies. Both are off to a blistering start for 2013; both are the subject of takeover talk to one extent or another; both have seen better days; and both, shadows of their former selves, are attempting to turn the corner -- but will likely never again be what they once were.

 

The two companies were considered growth names earlier in their histories. I've long been a consumer of their products. But that's where the similarities end. 


One is a larger, high-profile name that has gotten quite a bit of attention from the value-investing crowd in the past year or so, as the growth crowd moved on. The other is a small cap -- with a well-known brand name and a checkered past -- that has somewhat quietly put itself back into investor's minds.

 

These are the type of stories that are making 2013 interesting, at least for me; the companies I refer to are Dell (DELL) and Krispy Kreme (KKD).

 

Cash-rich Dell, which ended last quarter with $11.3 billion or $6.50 per share in cash, but also $9 billion in debt, is up 26% year to date, and the subject of buyout rumors. The latest story is that Silver Lake Partners is finalizing a bid to take Dell private; a deal that is expected to include Dell founder Michael Dell. While it's unclear what shares might fetch in a deal, just two months ago, Dell was trading near a four-year low, and is up 45% since.

 

It's been quite a fall from grace for Dell shares though, which were trading in the $17 range just one year ago, in the low $40's in 2005, and low $50's in 2000. Technology changed, competition in the PC space became fierce, and the company suffered the consequences. Longer term shareholders can't be happy with a deal that is anywhere close to the current price ($12.82), but those who swooped in in recent months, have done well ... so far. 

 

dell price

 

Krispy Kreme shares are up 27% year to date, and have nearly doubled since August, as skeptical investors -- that may have been burned by the company's fall from grace in its early days as a publicly traded company -- are showing renewed interest.

 

Krispy Kreme, a former "cult" stock, expanded too quickly in the early 2000s, and nearly went under as a result of poor accounting practices, and bad management.

 

After closing stores, and retrenching over the years, the company has focused on growing again, primarily through franchising in international markets.

 

The doughnut maker currently has about 240 U.S. locations, and 500 international. It also has plans to grow to 400 US locations, and 900 international by 2017. This is not the same company it was 10 years ago.

 

It will open its first store in India later this week, and has plans for a total of 80 in that country.

 

As of the latest fiscal year-end, there were 87 stores in Saudi Arabia, 71 in Mexico, 34 in Japan, and 56 in South Korea, 48 in the UK and the list of international locations continues.

 

kkd price

 

The recent run-up in share price may be due to some takeover speculation, although there's been nothing concrete. However, the company's adoption of a "tax asset protection plan," otherwise known as a "poison pill" early this week, lends some credence to the that speculation. The plan "discourages" new investors from taking more than a 4.99% stake in the company, and its stated intention is to preserve the value of the company's operating loss carry forwards, which for federal alone, amount to $240 million. Existing 4.99% or greater shareholders are exempt from the poison pill at current ownership levels, but not if they increase their stakes.

 

As a Krispy Kreme shareholder, I'm not a fan of this poison pill, or for that matter, poison pills in general.

 

It's a tale of two companies; one that wants to be sold and another that apparently does not. This should make for some interesting story lines for 2013.

 

Now, as I type this on my Dell, I could really go for a Krispy Kreme ... or two.

 

At the time of publication the author is long KKD.

 

More from TheStreet.com

5Comments
Jan 18, 2013 7:46PM
avatar
Are people being more proactive and health conscious?  Eating reducing media content and doughnut consumption? 0.o
Jan 20, 2013 5:29PM
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This is a financial site and yet most people believe the market only goes down.Nice to hear some

body recommending stocks.

Jan 18, 2013 7:43PM
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it just goes to show you that a good CEO or board can do the right thing and not bankrupt the company and still ask for thier bonuses
Jan 20, 2013 11:58AM
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What about GM and Chrysler.. I guess they forgot about these two GREAT American companies ! Seeing that the Auto industry is leading the USA out of the recession that never ended. Doughnuts and puters are not !  Only in the USA can a useless wall street POS rant about two companies that do not even add to the GDP... The Auto industry has created more jobs in the last two yrs than the Bush tax cuts or the so called job creators have in over 10 yrs...Wall street should have died in 2009 ! With the Feds pumping 40 billion a month into wall street , what we have now is pure socialized wall street! QE-1,2,3 are a joke and as soon as that stops this inflated market will fall like a rock...
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