Hershey to remain in a beat and raise cycle through 2025 - UBS

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By Sam Boughedda

Hershey (NYSE:HSY) was upgraded to Buy from Neutral, with its price target raised to $269 from $244 at UBS.

Analysts told investors in a note that given the large-cap packaged food sector's outperformance year-to-date, the firm believes investors should remain selective heading into 2023, and against this backdrop, it sees Hershey remaining in a beat and raise cycle through 2025.

"Our NT confidence is underpinned by wrap-around price benefits in 2023 coupled with capacity additions, while our LT confidence is driven by a more accommodative operating environment in Confection and a long runway of growth for sizable Snacks business. Net-net, we believe HSY can achieve 4% OSG and 9% EPS growth over the LT, which is above the Street's 3% and 7% expectations, respectively," the analysts wrote.

UBS also says the company has better visibility in 2023 compared to most others.

"We sense a high level of concern among investors we speak with about earnings growth for packaged food in '23 given: (1) the abnormally low level of visibility we have for this time of year. (2) FX headwinds are likely to remain elevated, (3) inflation for the group is likely to be up +DD, (4) supply chains have yet to return to normal productivity, and (5) interest expense and pension income are likely to be greater headwinds," the analysts said.

"Within this challenging operating environment, we believe there is greater visibility for HSY than most. Among lg cap packaged food peers, we expect HSY to deliver the highest sales growth (+9%), experience below-average inflation (+9%), while interest and pension income headwinds (-1% to EPS) will be lower than most others. Bottom line, we expect the gap between HSY's EPS growth (+14%) and peers (+4%) to increase in 2023."

Hershey's share price has gained over 1% so far on Thursday.