Investing.com -- Morgan Stanley cut Krispy Kreme (NASDAQ: DNUT ) to Underweight from Equal-weight in a note Wednesday, slashing its price target from $12 to $6, following what analysts described as “materially worse 2025 guidance” than expected.

The downgrade comes as Krispy Kreme shares plunged 22% after its fourth-quarter earnings miss and disappointing outlook for the year ahead.

While the company pointed to a cybersecurity incident as a factor affecting near-term results, Morgan Stanley sees deeper structural challenges that raise concerns about long-term demand and growth sustainability in the U.S. market.

"We’ll admit to being reactive with the stock down 22% today," analysts wrote but emphasized that Krispy Kreme’s revised 2025 outlook fails to inspire confidence.

They noted that the company had already struggled to hit past targets, with "many elements of the story continuing to shift too much for our comfort."

One of the biggest concerns is declining demand, with the company shifting toward value offerings rather than premium-priced items.

"The argument had been that as an indulgent, infrequent, occasion-driven purchase, demand for Krispy Kreme was relatively resilient," but recent trends suggest otherwise.

The bank noted that sales per hub were flat year-over-year in 2024, and even the expansion with McDonald’s (NYSE: MCD ) appears to be yielding muted results so far.

On the financial front, Morgan Stanley says cash burn remains an issue, with the company having lost $75 million in cash annually over the past two years. "If we follow the cash here, there is not an overly reassuring story," Morgan Stanley said, pointing to weak free cash flow and high debt levels.

The firm lowered its 2025 revenue estimate to $1.578 billion from $1.731 billion and reduced its adjusted EBITDA forecast to $187 million from $231 million, citing slowing demand and cost pressures.