Citigroup Not So Sweet On Hostess Brands, Initiates Coverage At Neutral

Hostess Brands Inc. TWNK has returned from its 2013 bankruptcy with a clean slate, including new bakeries, new owners and new management. This year, the company has revamped popular product lines and announced Andy Callahan as the CEO.

The Analyst

Citigroup analyst Alexis Borden initiated Hostess Brands with a Neutral rating and a $13 price target.

The Thesis

The Chapter 7 bankruptcy allowed the company to acquire new management and work with strong iconic brands, like Twinkie, Ding Dongs and Ho Hos, to reshape the business. Momentus capital investments and a revised operating model also drove overall improvement, Borden said.

“However, after generally being perceived as one of the ‘growthier’ stories in the U.S. Food," Borden wrote in a note, "there is now a host of questions over Hostess’ near-to-medium term outlook given recent revenue headwinds from lost WMT display space, heightened cost inflation pressures & the ability to get pricing, and continued sluggish SBG category growth.”

Borden reports a cautious near-term stance, despite long-term business expansion plans and market share gains. According to company earnings from August, Hostess Brands reported a 6.2-percent net revenue increase to $12.7 million, as well as a net income of $24.6 million, compared to the expected $28.2 million.

Price Action

Hostess shares were down 1 percent to $11.32 at time of publication Wednesday.

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