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Hostess Looking Like A Sweet Deal At Current Valuation

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Hostess Looking Like A Sweet Deal At Current Valuation

Hostess Brands, Inc. (NASDAQ: TWNK) offers consumers a tasty treat and investors a compelling investment thesis with a 24 percent potential upside.

Rob Dickerson of Deutsche Bank initiated coverage of the U.S. food sector on Wednesday and slapped Hostess Brands with a Buy rating and $84 price target.

The analyst's bullish thesis is mainly based on the company's position within the Sweet Baked Goods category and its ability to charge a premium price point versus its peers. In fact, Dickerson noted Hostess Brands commands the second highest gross margin at 43 percent within the 13 major companies under his coverage.

Related Link: How Sweet Were The Soda Pop Quarterly Prints?

Dickerson also noted Hostess Brands boasts a "suburb" sales to free cash flow conversion and is okay with carrying a leverage closer to 4.5x EBITDA versus the industry average of 3x.

Moreover, unlike many of the large-cap food names, Hostess' growth isn't dependent on cost-savings initiatives; rather it's a "top-line story."

The analyst highlighted five other aspects of Hostess' business to support his bullish stance:

  • The company's willingness to expand into other products and categories, such as deep-fried Twinkies.
  • High EBITDA margin and strong free cash flow.
  • Ability to offer a good profit take for retailers.
  • Willingness to spend money for accretive acquisitions.
  • The snacking category as a whole has a limited brand focus and Hostess has a good position in the category from a strategic point of view.

Latest Ratings for TWNK

DateFirmActionFromTo
Jul 2019MaintainsEqual-Weight
Jun 2019UpgradesNeutralBuy
Jun 2019Initiates Coverage OnBuy

View More Analyst Ratings for TWNK
View the Latest Analyst Ratings

Posted-In: Deutsche Bank Food Companies food stocks HostessAnalyst Color Price Target Initiation Analyst Ratings

 

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