Market Overview

Five Stocks for National Doughnut Day


The first Friday of June is National Doughnut Day in the United States. The event was created by the Salvation Army in 1938 as a fund raiser and to honor women who served donuts to soldiers during World War I. Some independent doughnut shops and large national franchises, such as Dunkin' Donuts and Krispy Kreme, offer free doughnuts to customers in the United States in honor of the day.

If you have a participating location near you, have a doughnut and consider these five bakery stock picks (and one IPO) inspired by the day.

Krispy Kreme Doughnuts

As mentioned Krispy Kreme (NYSE: KKD) is offering complimentary doughnuts on Friday. The company's best quarterly earnings report in seven years pushed the stock to a new multiyear high of $8.66 per share recently. Profits more than doubled and revenues jumped 14%, due in part to price increases.

Krispy Kreme has a 50% long-term earnings per share forecast, as well as a PEG ratio of 0.6. Its largest competitor, Dunkin' Donuts, has an impending initial public offering (see below). The share price is up about 19% from the beginning of the year, outperforming the broader markets in the period.

Tim Hortons

Canada's leading doughnut and coffee shop is looking for a new chief executive; former CEO Paul House has the reins in the interim. Tim Horton's (NYSE: THI) raised prices in the most recent quarter, but earnings grew less than analysts expected.

The dividend yield is 1.2% and the return on equity is 47.7%. The P/E ratio is in line with the industry average, and the long-term earnings per share growth forecast is 15.0%. The share price has pulled back about 9% from a recent 52-week high, but it is still up around 10% since the beginning of the year.

Flowers Foods

Flowers Foods (NYSE: FLO) is one of the largest wholesale bakeries in the United States, offering much more than doughnuts. In May's annual shareholder meeting, Flowers Foods announced a three-for-two stock split and increased its annual dividend rate by 12.5%.

"Our business continues to generate substantial cash flow that funds dividends to our shareholders, capital improvements, and share repurchases, as well as growth through market expansion and strategic acquisitions," said CEO George Deese. Shares are trading near a multi-year high after rising about 19% year to date.

Einstein Noah Restaurant Group

Einstein Noah Restaurant Group (NASDAQ: BAGL) is the largest bagel shop operator in the United States. The company said it plans to open at least 75 new restaurants in 2011. Also, the company announced management changes in the first quarter to follow the impending retirement of the COO.

The return on equity is 16.0% and the PEG ratio is 0.9. The company has a long-term EPS growth forecast of 16.0%. The stock jumped to a 52-week high in February, but other than that, shares have traded mostly between $14 and $16 since the beginning of the year.

Sarah Lee

Early in the year, Sarah Lee (NYSE: SLE) announced plans to split its North America and international operations into separate publicly traded companies. Since then, the company has sold its shoe-care business, acquired a premium meats business and declared its 261st consecutive quarterly dividend.

The return on equity is 32.0% and the P/E ratio is less than the industry average. The share price is up more than 13% since March. The stock has outperformed competitor Kraft Foods (NYSE: KFT) and the broader markets in the past three months.

Dunkin' Brands

Dunkin' Brands, which operates the Dunkin' Donuts and Baskin Robbins chains, last month filed with U.S. regulators to raise up to $400 million in an initial public offering. The company did not disclose the pricing per share, number of shares or an offering date. The stock will be listed on the Nasdaq exchange with a ticker of DNKN.

Dunkin' Brands was taken private in 2005 by private equity firms Bain Capital, Carlyle Group and Thomas H. Lee Partners in a $2.4 billion deal. These three firms are still stakeholders.

Dunkin' Donuts is the world's largest doughnut chain, and it too is participating in doughnut giveaways tomorrow.


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