Shares of Hershey (HSY) are on the rise after Bank of America Merrill Lynch analyst Bryan Spillane upgraded the stock to Buy all the way from Underperform saying the company should generate improved organic sales and operating profit growth in FY19 based on the investments it made in the past two years.
BANK OF AMERICA SAYS BUY HERSHEY: In a research note to investors this morning, Bank of America Merrill Lynch’s Spillane upgraded Hershey by two rating notches to Buy from Underperform and raised his price target on the shares to $120 from $92. The analyst argued that investments made in 2017/2018 should translate to improved organic sales and operating profit growth in FY19. These improvements combined with strong balance sheet/cash flows position Hershey to generate about 10% annual total shareholder returns, he contended. Moreover, Spillane pointed out that he sees a combination of new products, full year of new stand up packaging, expanded capacity, U.S. price increases and lapping Amplify deal should set Hershey to accelerate organic sales growth by about 200bps in FY19. Additionally, he expects margin pressures to ease in FY19 as the candymaker laps big capabilities investments from FY18 and commodity inflation moderates allowing more of the pricing and cost saves to drop to the bottom line. When the market has turned defensive, Hershey has traded at a higher premium relative to peers, reaching premiums as high as 70%-90%, Spillane noted, highlighting that currently, the stock is trading at an 18% premium to the market. The analyst expects room for expansion due to the uncertain economic outlook combined with the company’s visibility into FY19 growth and low international exposure.
PRICE ACTION: In late morning trading, shares of Hershey have gained about 3.2% to $107.65.