Key Takeaways
- Krispy Kreme shares dropped 6.6% on Monday, raising the possibility the company’s stock could fill the McDonald’s partnership news gap.
- Piper Sandler analyst Brian Mullan believes the partnership, when fully operational, could boost Krispy Kreme’s adjusted earnings by 46% from earnings reported over the past 12 months.
- A “fill the gap event” in Krispy Kreme shares would see the price retest the $12.45 level, which also sits in close proximity to key support near $11.70.
Krispy Kreme (DNUT) shares slid 6.6% on Monday, continuing their recent fall after soaring nearly 40% in late March on news McDonald’s (MCD) plans to sell the company’s donuts at its restaurants nationwide by the end of 2026, increasing the possibility of a “fill the gap” event on the stock’s chart.
Despite the recent share price weakness, investment bank Piper Sandler upgraded Krispy Kreme’s stock on Friday to “overweight” from “neutral” and lifted its price target to $20, up from $14, representing 40% upside from Monday’s close of $14.32. The bank sees the partnership as a “game changer.”
“We’d expect to see the narrative around Krispy Kreme start to improve from here.” Piper Sandler analyst Brian Mullan wrote in a report cited by Barron’s.
Krispy Kreme, which sells treats through its nearly 400 independent stores as well as in grocery and quick service chains, first started distributing Krispy Kreme doughnuts through McDonald’s in late 2022, The expanded partnership with the fast food giant provides access to its nearly 14,000 restaurants, helping the doughnut seller almost double its U.S. distribution.
“What the McDonald’s partnership does for Krispy Kreme is that it gives management the confidence and the ability to significantly increase its donut production capacity investments across the U.S., which it will now be able to do on an accelerated basis,” Mullan noted. The analyst added that he expects the partnership, when fully operational, to boost Krispy Kreme’s adjusted earnings by 46% from the $212 million the company posted in the past 12 months.
Turning to the charts, the Krispy Kreme share price gapped above both the 50-day and 200-day moving averages on the day the companies announced the McDonald’s partnership news, with the stock also closing above a significant overhead horizonal resistance line around $16.05.
However, since then, the price has continued to retrace, raising the possibility for the stock to fill the gap—a situation where the price retests the level it traded at before the initial news-driven jump. Therefore, if the shares continue to decline, monitor for buying interest at the pre-gap area around $12.45, which also sits is close proximity to key support near $11.70. Momentum often shifts back to the upside once a gap has been filled as investors who held short positions exit the stock.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.
As of the date this article was written, the author does not own any of the above securities.