Hershey Looks Sweeter On M&A, Possible Tax Cut, Berenberg Says

Hershey Co HSY's acquisition announcement of snackmaker Amplify Snack Brands Inc BETR earned the chocolate company a nod of approval from one Wall Street analyst.

The Analyst

Berenberg's Fintan Ryan upgraded Hershey's stock rating from Sell to Hold with a price target boosted from $98 to $115.

The Thesis

Hershey has been busy over the past few years and has diversified away from a core chocolate- and sugar-themed food company to become more of a "better for you" chocolate company, Ryan said in a Monday note. (See Ryan's track record here.) 

While prior acquisitions in these new areas — such as the 2016 acquisition of BarkTHINS' parent company — hasn't had any meaningful impact on its top-line growth, the acquisition of Amplify could add around 5 percent to Hershey's EBIT in outer years and create EBITDA synergies of $20 million by year two, according to Berenberg.

Hershey could end up being a winner from proposed U.S. tax reform, as its corporate tax rate could fall from 35 percent to 21 percent, Ryan said. The acquisition will likely prompt the company to suspend its share buyback program for the time being, the analyst said.

The case for selling Hershey stock no longer applies given the company's revised prospects and favorable tax changes, Ryan said. 

Price Action

Shares of Hershey were trading slightly up at $114.58 at the time of publication and are up 11 percent since the start of 2017.

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