Analyst Lauds Hershey's Shining Future Growth Prospects, Resilient Category Demand And New Capacity

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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