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stock has risen less than 11% in the latest 12 months, trailing the overall market. Yet with the confectioner turning in impressive results, Goldman Sachs argues that the company—and the stock—should get more attention.
Jason English raised his rating on Hershey (ticker: HSY) stock to Buy from Neutral on Thursday, and lifted his price target to $181 from $171
He writes that Hershey notched the “most robust year” of growth in earnings before interest and taxes (EBIT) last year, as higher pricing drove gross-margin expansion at the same time that the company exerted disciplined cost controls. While some might see that as an outcome of the pandemic—given that more people were snacking, including on sweets, at home—he argues that Covid-19 had only a modest impact on the company.
“Rather than a one-off, we believe 2020 was the beginning of a three-plus year cycle of outsized growth as the confection industry leverages its unique pricing power to expand the revenue and profit pool at a time when input costs are non-daunting,” English writes.
Privately held Mars is “leading the charge” for now, but he expects Hershey will follow over time, given that there is a history of fairly unified price moves in the industry. That should allow Hershey to deliver strong growth in the years to come, in contrast to many of its U.S.-focused consumer-staples peers. He raised his full-year earnings-per-share estimates by 2%, and by 6% and 8% for fiscal 2022 and 2023, respectively. His increased price target, along with the company’s 2% yield, reflects his expectation for 17% total shareholder return over the next 12 months.
Hershey stock is up 2% to $161.28 in recent trading, and the shares are up nearly 6% year to date.
Last month Piper Sandler also turned bullish on Hershey stock.
Write to Teresa Rivas at teresa.rivas@barrons.com
