Bank of America upgrades Hershey to buy from underperform, predicting 10% annual returns

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Hershey Co. candy mascots stand outside of the company’s Chocolate World visitor center in Hershey, Pennsylvania.

The Hershey Company was double upgraded by Bank of America Merrill Lynch analysts who see the company’s improved organic sales and operating profit growth, combined with strong balance sheet, driving 10 percent annual total shareholder returns.

“While the chocolate, candy and gum category is slowing, Hershey has taken strategic actions through reinvestment, acquisitions and divestitures and cost savings to drive both sales and earnings growth. Hershey has positioned itself better than peers to grow sales and profits while maintaining flexibility to return cash to shareholders,” the bank’s analysts Bryan Spillane and Jacqueline Waldman said in a note to clients on Wednesday.

Bank of America upgraded Hershey all the way to buy from underperform and raised its 12-month price target to $120 from $92. From Hershey’s Tuesday close at $104.36, the new price target would translate to a 15 percent gain. Shares of Hershey have risen 14 percent in the last six months, while the S&P 500 plummeted 8 percent during the same period.

“We believe that Hershey has good visibility into their growth algorithm with relatively low exposure to international risk. We expect earnings to grow 6 percent over the next few years as accelerated investments made in 2018 start to flow through,” the analysts said.

Hershey shares gained 0.8 percent in premarket trading Wednesday.

The chocolate company’s new products including Reese’s Thins, new stand up packaging as well as its 2.5 percent U.S. price increase will accelerate organic sales growth next year, the anaylsts added.