Krispy Kreme $DNUT McDonalds Consumer Staples Hype BEWARE

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The pumping of Krisky Kreme $DNUT stock is getting ridiculous. First, we had the story that McDonald’s was testing Krispy Kreme doughnuts. Now the latest I heard, without mentioning names, is that Krispy Kreme $DNUT stock is a consumer defensive stock because it’s a food item.

McDonalds and Krispy Kreme Sales Test

Shares of Krispy Kreme $DNUT have risen 11% after McDonald’s said it will start a test of selling three varieties of Krispy Kreme doughnuts at nine locations in restaurants in Kentucky. Calculating the 11% move from Krispy Kreme’s market cap, that means that the test of donuts in 9 stores is worth $262 million?! Just to put that in perspective, McDonalds makes about $55 million dollars a day from its 38,695 stores around the planet. The market cap of Krispy Kreme just went up the equivalent of all the revenue from every McDonald’s store on the planet, over a 5 day period.

The hype premium of McDonald’s rolling out Krispy Kreme doughnuts to all of its stores is already accounted for in the stock price which is nonsense. Chasing Krispy Kreme $DNUT stock higher on the idea that McDonald will offer Krispy Kreme doughnuts at all of its locations isn’t investing, it’s suicidal gambling. Place your bets on a number and spin the wheel.

Just to be clear, I’m not suggesting that value can’t be unlocked with this deal. The largest shareholders in both McDonald’s and Krispy Kreme include both Blackrock and Vanguard. It’s possible that Blackrock and Vanguard are pushing McDonald’s for this deal to unlock more value from their Krispy Kreme holdings. I’m just saying let’s wait for the outcome of the Kentucky, 9 store test, before getting too excited and chasing $DNUT higher.

Krispy Kreme, McDonald’s teaming up for a limited-time test in one US city

Krispy Kreme, McDonald's teaming up for a limited-time test in one US city

Krispy Kreme $DNUT Stock Is a Consumer Defensive Stock?

Yes, Krispy Kreme doughnuts sells a food product, but that doesn’t make them a consumer defensive stock. “People still have to eat,” is the food industry hype in a recession for consumer defensive stocks. My response is “Yeah, but they don’t have to eat doughnuts!” Consider what kind of food product it is and product substitution before classifying all food stocks as consumer defensive.

I challenge that Krispy Kreme is actually a consumer cyclical stock even though it sells food.

People are struggling to afford rent, electricity, healthcare, and food costs. Workers across the country have stopped contributing to employer matching 401K retirement plans. With layoffs and credit card delinquencies on the rise, are we saying that people are just like “Hell, better go have some doughnuts.” Classifying Krispy Kreme as a consumer defensive stock is saying that.

There’s more than just common sense that Krispy Kreme is not a consumer defensive stock. Last quarter, with inflation ripping and the economy going into a recession, Krispy Kreme reported Q2 EPS of 8c versus the consensus estimate of 9c. Revenue also missed coming in at $375 million versus the consensus estimate of $385 million. The company even guided lower with FY22 revenue coming in between $1.49B to $1.52B, versus the consensus estimate of $1.56B.

I challenge that Krispy Kreme is a consumer cyclical stock.

If Krispy Kreme truly was a consumer defensive stock, then the company would beat EPS and revenue estimates and it wouldn’t be lowering sales estimates! BUT if Krispy Kreme was a consumer cyclical stock, then what we saw with last quarters EPS and revenue misses makes perfect sense.

Krispy Kreme $DNUT Stock Technical Analysis

Krispy Kreme $DNUT stock is in a technical uptrend. The stock is approaching tough resistance next week from $14.70 to $14.95. Much of the uptrend channel move has been on a negative money flow, suggesting that caution is warranted.

Krispy Kreme Donuts stock chart on November 6, 2022, in an uptrend channel with a neutral MACD and negative money flow.
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