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The Analyst: Bryan Spillane upgraded Hershey's from Neutral to Buy with a price target lifted from $156 to $168.
The Thesis: Hershey has built enough momentum in 2020 to grow organic sales by 2.4% in 2021 driven by a combination of price/mix and volume, Spillane said in a Wednesday upgrade note.
The company is focused on delivering growth by investing in its brands and the expansion of recent initiatives like Thins, the analyst said.
Operating profit growth of 4.5% in 2021 should be driven by sales growth, cost savings and superior productivity, he said.
Hershey faces a "smaller magnitude" of difficult comps from COVID-19 disruptions compared to its peers, Spillane said.
Hershey stands to benefit from a continued vaccine rollout that will help support away-from-home sales at retail locations, the analyst said.
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Investor concerns related to higher cocoa prices and potential freight inflation might be overblown, he said.
Specifically, higher input costs would impact the entire industry and Hershey can count on its pricing to partially offset higher costs, Spillane said.
The majority of Hershey's freight is contracted, so it would take longer for higher transportation costs to become evident, according to BofA.
Finally, Hershey's stock multiple traded at a 30% premium versus the S&P 500 index in early 2020 but now trades at an 8% premium, Spillane said, adding that the company should be able to return to its prior premium amid catalysts that will support growth in 2021.
HSY Price Action: Shares of Hershey were up 0.78% at $151.90 at last check Wednesday.
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