$Krispy Kreme (DNUT.US)$ rose more than 7% Friday after Piper Sandler analyst Brian Mullan upgraded the donut maker to "Overweight" from Neutral" and raised its price target to $20 from a previous $14.
DNUT gained 7.3% on the news to close Friday at $15.33.
Mullan wrote in a note that as a result of the company's recently announced national partnership with $McDonald's (MCD.US)$, the stage is set for a material expansion of DNUT's Points of Access (POA) in the U.S. over the next roughly three years.
He argued that the partnership the gives Krispy Kreme management the confidence and ability to significantly increase its donut-production-capacity investments across the U.S.
According to Mullan, the last three years have not been the best historical time period from a free cash flow generation perspective for DNUT.
But the analyst mentioned that Krispy Kreme could reduce its balance-sheet leverage by approximately 1.6x by the end of 2026 compared to the end of 2023 even as it finances expansion of its capacity.
By the end of 2023, there were 13,457 McDonald's locations in the U.S., and the analyst projects that DNUT could target 85% of these locations by the end of 2026.
The analyst thinks the McDonald's partnership is a game changer for the business, and expects to see the narrative around DNUT start to improve from here.