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Back in October, when I first mentioned Prudential analyst Howard Penney's bullish report on Krispy Kreme (NYSE:KKD), I wrote, "How in the name of serious financial analysis can any analyst issue such a report with a straight face? How can any analyst put a target on the stock or even forward earnings projections, no less, when he doesn't know the number?"

My hunch, based on Penney's downgrade of Krispy Kreme yesterday, was that he must now asking himself the same thing. In a report explaining his switch to neutral from overweight, he wrote:

While we feel the company and management is on the right track to turning around the company, we believe that the recent changes to the senior management team might 'stall' the turnaround timeline.

(One of the changes he was referring to was the recently announced departure of CFO of two years, Michael Phelan, who is returning to investment banking.)

So back to my hunch: was Penney thinking the same thing himself about his original report -- that it was, at best, premature; at worst, premature? Not in the least. When I caught up with him yesterday, he said:

I listened to commentators for financial networks criticizing analysts for merely spitting out the company press releases -- taking the company line and doing no work. So here is someone who spends tremendous time to build a model, who takes the time to do the work and he gets criticized for it. You can't have it one way, and say we're doing no work, and have it another and say we're irresponsible for doing this.

But the company, I remind him, hadn't filed annual and quarterly numbers with the SEC in well over a year when he first wrote.

He reminded me they had issued press releases with some key numbers:

When I published I came up with an EBITDA for $45 million for the year -- without having seen financials -- and they reported $35 million. For not having a lot to work with, I think I was doing okay. As an analyst, this is what I do. When you're trying to add value and trying to do something different -- and not just to be different -- writing the next quarterly earnings report on McDonald's (NYSE:MCD) or any company isn't adding value. So you have to find unique circumstances in which you have to go places other people are unwilling to go. Krispy Kreme was that kind of opportunity.

The stock, which nearly doubled on the news, is just about to where it was when he originally wrote its report, including yesterday 4% decline.

Moral of the story: Damed if you do, damned if you don't.


KKD 1-yr chart: