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Hostess Brands Bull Case Baked In Already At Current Price

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Hostess Brands Bull Case Baked In Already At Current Price

Analysts at Morgan Stanley have an appetite for Hostess Brands, Inc. (NASDAQ: TWNK)'s growth story but not so much for the stock. The firm's Matthew Grainger initiated coverage of Hostess Brands' stock with an Equal-Weight rating and $14 price target.

Hostess Brands, the maker of the popular snack Twinkies, managed to grow its sales at a 15-percent compounded annual growth rate (CAGR) throughout 2015 and 2016, Grainger commented in his initiation noted. But since then the company's growth profile has "slowed meaningfully" as it grew just 2 percent in the second quarter amid weaker trends in the overall sweet baked goods food category which saw a decline of 0.5 percent year to date.

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Hostess Brands has outperformed the broader group and this trend will likely continue as the company is projected to deliver a 3.8 percent organic sales CAGR rate over the medium turn, Grainger continued. While this estimate is "well above" most of its food peers, the analyst has some concerns with the company's 2017's fourth-quarter weighted guidance and the company's own outlook for a sustainable mid-single digit growth rate.

Specifically, management's mid-single-digit organic sales growth rate implies a 50 to 100 basis points of annual share gains and a 2 to 3 percent growth rate in the sweet baked good segment. The analyst's estimates has the company gaining approximately 50 basis points of annual share, which is above its long-term annual share growth profile of losing 25 basis points.

Bottom line, Hostess Brands' stock deserves to trade at a premium to the broader premium food group — which it is already trading at based on a blend of 21x C2018e P/E and 12.5x EV/EBITDA, supported by a discounted cash flow model.

Related Links:

Hostess Looking Like A Sweet Deal At Current Valuation

Hostess' Sweet Comeback Runs Into Industry Slowdown

Latest Ratings for TWNK

DateFirmActionFromTo
Sep 2019MaintainsHold
Jul 2019MaintainsEqual-Weight
Jun 2019UpgradesNeutralBuy

View More Analyst Ratings for TWNK
View the Latest Analyst Ratings

Posted-In: food Food Companies food stocks Matthew Grainger TwinkiesAnalyst Color Initiation Analyst Ratings Best of Benzinga

 

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