Can Moody’s Save Krispy Kreme? (KKD)

Krispy Kreme Doughnuts Inc. (NYSE: KKD) is as much a cult stock as any, even though the stock has fallen off almost every big trader and investor radars after its problems with keeping its records straight emerged over the past decade.  After a positive research call from a broker with a “Strong Buy” last week, Moody’s has come to aid of Krispy Kreme today with an upgrade of its own.

Moody’s Investor Service raised Krispy Kreme’s ratings and the current B3 from Caa1.  The bank debt was raised to B2 from B3 and its PDR to Caa1 from Caa2.  Moody’s noted that the ratings outlook is “Stable,” indicating that no fresh downgrades are likely to come in the near future.

The rating change reflects the ongoing weak margins and return on assets, mixed with commodity price risks and limited growth opportunities.  The doughnut chain’s large debt reductions of more than 40% since the start of 2009 and its modest operating improvements were also cited along with a revenue decline deceleration.

In June, the company showed a doubling in profits, mostly due to lower interest expenses.

Just a week ago, a brokerage firm called CL King initiated with a ‘Strong Buy’ rating and assigned it a $5.00 price target objective.  Shares were at $3.77 and went over the next few days to as high as $4.00.  Shares have come back in and the 4.8% gain seen today has shares at $3.93.  The 52-week trading range is $2.56 to $5.15.

Maybe a ratings agency and an analyst call can save a cult stock of a controversial doughnut chain.

JON C. OGG