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BB&T Capital Downgrades Krispy Kreme to 'Buy'

BB&T Capital downgraded Krispy Kreme (KKD) to buy from strong buy.

The doughnut chain agreed to buy Montana Mills Bread for 1.2 million in Krispy Kreme shares. Analyst Andrew Wolf says Krispy Kreme is paying $40 million for the upstate New York-based bakery chain. He notes the acquisition will be dilutive to earnings per share by three cents in the first full year of ownership.

Wolf says the deal is a positive growth vehicle for Krispy Kreme in the future, but will take the starch out of earnings per share in the near term. He cut the 88 cents fiscal 2003 (Jan.) earnings per share estimate to 85 cents, and cut the $1.20 fiscal 2004 (preliminary) to $1.15.

Wolf also cut the $50 12-month target to $42, as he sees a price-earnings multiple of 37, based on his fiscal 2004 earnings per share estimate.

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