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Citi Has A Craving For Hershey, Upgrades Stock To Buy

Citi Has A Craving For Hershey, Upgrades Stock To Buy
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Hershey Co’s (NYSE: HSY) shares are likely to rebound in 2017 due to an imminent announcement of a cost savings program and the rekindling of top-line growth, “on the back of significant, impactful innovation,” Citi’s David Driscoll said in a report.

He upgraded the rating on the company from Neutral to Buy, while reducing the price target from $115 to $110.

Cost Savings Announcement

Driscoll expects Hershey to announce a cost savings program that would yield potential savings between $175-$300 million. The program, encompassing both supply chain and SG&A costs in North America and China, would likely result in operating margin expansion of 250-400bps.

Even after assuming a 100bps reinvestment into the business, the potential operating margin expansion is at 150-300bps from 20.2 percent in 2016. “Our above consensus EPS estimates assume +100bps expansion by 2018, leaving considerable upside to our estimates from the anticipated restructuring program,” Driscoll wrote, adding that each +100bps would add 25 cents per share or 6 percent to EPS.

Impactful Innovation

The analyst mentioned 3 major innovations:

  1. Cookie Layer Crunch
  2. Big Kat
  3. Reese’s Pieces PB cup

These are expected to drive 3 percent sales growth at Hershey starting in Q3, following a couple of lackluster year. Driscoll projected $180 million in revenue contribution from these innovations.

Latest Ratings for HSY

Oct 2017UBSMaintainsNeutral
Oct 2017CitigroupMaintainsBuy
Aug 2017BernsteinUpgradesMarket PerformOutperform

View More Analyst Ratings for HSY
View the Latest Analyst Ratings

Posted-In: Citi David DriscollAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas Best of Benzinga


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