- Mizuho analyst John J. Baumgartner reiterated a Neutral rating on The Hershey Company HSY, raising the price target to $263 from $235.
- Baumgartner notes that Hershey's achievable guidance, resilient category demand, and new capacity will limit downside risks to FY23 EPS.
- The analyst applauds the company's category defensiveness, vigorous execution of snacking exposure, increasing capacity (chocolate & non-chocolate), and strong returns from advertising spend.
- Investors will continue to find near-term confidence in the confectionery. This is because the new capacity is on track (tonnage approx. +300bps this year) and will enable full participation in Halloween and year-end holidays (improving market share) and summer merchandising for chocolate and non-chocolate products.
- In addition, the planned acquisition of Weaver popcorn manufacturing assets is expected to happen potentially in Q2.
- The buyout will provide ample capacity for multi-year growth, incremental operating leverage, and margin upside in FY24 and beyond.
- For FY23, the analyst increased gross margin to 44.7% and +70bps Y/Y vs. the prior 44.4% guidance.
- This year, the company will undertake a range of investments, including increased brand spending to support key confection and salty snacks brands, including Reese's, Hershey's, seasonal initiatives, gummies, better-for-you products, and salty snacks.
- The analyst notes that new capacity should further support volume as constraints have limited HSY's ability to meet demand, particularly for Halloween and holidays.
- Also Read: Hershey Raising The Bar With Solid Q1 Beat; Eyes High-End Of FY23 Outlook
- Price Action: HSY shares are trading higher by 1.27% at $276.53 on the last check Monday.
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