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Krispy Kreme Doughnuts

KKD

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Krispy Kreme Doughnuts Inc. (KKD - Snapshot Report) hit its 52-week high on November 20 after reporting outstanding fiscal third-quarter results, which included a raised outlook for the full year. Moreover, with rising earnings estimates, a one-month return of roughly 31% and a long-term earnings growth projection of 25.0%, this Zacks #1 Rank (Buy) appears to be a solid growth pick.

A Winning Third Quarter

On November 19, Krispy Kreme reported fiscal third-quarter earnings of 12 cents per share, beating the Zacks Consensus Estimate by 50.0% and last year’s performance by 71.0%. Total revenue climbed 8.5% year over year to $107.1 million.

Same-store sales at company stores increased 6.8%, marking the 16th consecutive quarter of comps growth. Operating income in the quarter expanded 66.0% to $9.2 million.

Upbeat Guidance

Based on the strong third-quarter results, Krispy Kreme raised its outlook for fiscal 2013. Consolidated operating income is now projected between $34 million and $36 million, up from the previous range of $29 million to $33 million.

The company also raised its fiscal 2013 earnings guidance to between 44 cents and 47 cents per share, compared to the previous range of 36 cents to 42 cents. The company issued a preliminary guidance for fiscal 2014, which projects operating income of $38 million to $42 million and adjusted EPS for fiscal 2014 between 49 cents and 55 cents per share.

Earnings Estimates Inching Higher

Over the past 30 days, the Zacks Consensus Estimate for fiscal 2013 has advanced 7.1% to 45 cents, as 4 of 5 earnings estimates moved higher. This reflects year-over-year growth of 45.81%.

Attractive Valuation

Though Krispy Kreme is expensive by most valuation metrics, it looks reasonable on a P/B and PEG basis. The stock currently trades at a forward P/B of 2.43x, a 16.2% discount to the peer group average of 2.90x. Given the long-term growth projection of 25%, the PEG ratio comes in at 0.8, a 20% discount to the benchmark of 1 for a value stock. Thus, the expected long-term earnings growth is currently set at a discount. Based on the double-digit earnings growth prospect in the current year, the valuation presents a window of opportunity for investors seeking growth.

Shares surged following its third-quarter earnings release. Since then, it has been continuously outperforming its 200-day and 50-day moving averages. Year-to-date, shares of Krispy Kreme have gained 38.0%, outperforming the S&P’s 11.0% during the same period of time. Krispy Kreme’s volume is also fairly strong, averaging roughly 812K daily.

Krispy Kreme is a leading branded specialty retailer of premium quality doughnuts. As of Oct 28, 2012, the company operated 96 company stores and 635 franchise stores. Furthermore, the company plans to operate 900 international stores by the end of fiscal 2017. With a market capital of about $589 million, KKD competes with Dunkin' Brands Group Inc. (DNKN), among others.


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