Why Hershey's Stock Is Sweet For Investors

Hershey Co HSY is among the best-positioned food companies amid the surge in commodity costs as cocoa prices have remained stable, according to Piper Sandler.

The Hershey Company Analyst: Michael Lavery upgraded Hershey Company's stock rating from Neutral to Overweight with a price target lifted from $147 to $175.

The Hershey Thesis: Cocoa costs are relatively flat versus 2020 levels despite inflationary trends playing out elsewhere, Lavery wrote in the upgrade note.

This would act as a potential catalyst for Hershey given much better input costs versus its peers. In fact, the company could see just 1% to 2% in higher costs over the next four quarters before any offsets from productivity or pricing increase.

Meanwhile, Hershey spends 6% to 7% of total sales on marketing and this can translate to better brand equity and pricing power with consumers, the analyst wrote. By contrast, rival food companies typically allocate 3% to 4% of sales on marketing.

Finally, the company's top-line momentum is trending better than expected after measured U.S. retail sales grew 7.5% from the start of 2021 through March 7. Hershey is on track to exceed prior estimates of 2% U.S. organic growth for the first quarter, although this outlook depends on the timing of Easter purchases.

The research firm's revised $175 price target is 25 times 2022 estimated EPS of $7 versus a prior multiple of 21 times. The higher multiple is attributed to better visibility for Hershey's cost outlook.

HSY Price Action: Shares of Hershey were trading higher by 0.7% Wednesday morning at $154.55.

(Photo: Hershey)