Zacks Investment Ideas Highlights: Hostess Brands and The Hershey Company

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Chicago, IL – January 28, 2022 – Today, Zacks Investment Ideas presents Highlights Features: Hostess Brands, Inc. TWNK and The Hershey Company HSY.

Industry group analysis: how to find the winners of 2022

2022 is expected to be a tough year for investors, as stocks have posted double-digit returns in each of the previous three years. After minimal pullbacks in 2021, volatility has returned and is likely to remain there for the rest of this year. There are countless worries in the current investment landscape, including foreign unrest with Russia and Ukraine, inflationary pressures, ongoing supply chain issues and a Fed ready to embark on a rate hike. . The fact that this year is a mid-term year only adds to the list of growing concerns.

Defensive sectors such as consumer staples tend to outperform in years when the overall market is weak. Energy is leading this year as inflation has yet to peak, but consumer staples are significantly outperforming more aggressive sectors like consumer discretionary and technology. Knowing that this year has a high probability of being a relatively flat (and potentially even negative) year for stocks, how do we as investors pick stocks in this type of environment?

The first step is to identify the major industry groups. Quantitative research studies suggest that about half of a stock’s price appreciation is due to its sector grouping. Focusing on stocks in the best performing sectors provides a constant tailwind to our investment results. Including this step in our selection process also allows us to refine the investment universe and select stocks with the best profit potential.

The length of time that industry groups stay at the top can vary from a few months to several years – it ultimately depends on the market environment. The most successful industry groups are constantly changing, so it would be wise for investors to keep up to date with these groups. Stocks in these industries will generally lead the market, and it is these stocks that we want to target for additions to our portfolio.

Luckily for investors, at Zacks we offer you an exclusive industry group ranking system called Zacks Industry Rank. This system harnesses the power of the Zacks ranking, which means that higher-ranking industries contain more stocks that receive upward revisions to earnings estimates. Simply put, your most profitable stocks will be those with upward revisions to earnings estimates in industries benefiting from the same.

Targeting the top industries ranked by Zacks is a great place to start building your portfolio. Let’s look at an example of an industry group that is outperforming in the current market environment and whose constituents are receiving positive earnings estimate revisions.

The Zacks Food-Confectionery industry, part of the Staples Consumer segment, is currently ranked in the top 15% of all industry groups. Specifically, this group ranks 39th out of all 254 industries. Below, we will analyze two constituents that are part of this prominent industrial group.

Hostess Brands, Inc.

Hostess Brands is a packaged food company that develops, manufactures and distributes snacks primarily in the United States. TWNK offers a wide range of sweets such as donuts, pastries, cookies and wafers under various recognized brands such as Twinkies, CupCakes, Donettes, HoHos and Cloverhill. Hostess Brands was founded in 1919 and is headquartered in Lenexa, KS.

Zacks Stock No. 2 (buy), TWNK has exceeded earnings estimates in every quarter for the past three consecutive years. The company recently reported EPS of $0.21 for the quarter ending last September, a surprise of 10.53% from consensus estimates. TWNK delivered a surprise 5.02% over the last four quarters of average earnings, contributing to the stock’s 42.07% return over the past year.

News broke this morning that TWNK will be added to the S&P SmallCap 600 Index, which has sent shares up more than 5% at the time of this writing. The stock will be added to the index on February 1st. Portfolio managers and institutions looking to track the index will need to alter allocations to account for the change.

TWNK is due to release its final 2021 results for the quarter ending December on March 1st. In total last year, EPS is expected to have increased by 14.67% to $0.86, while revenue is expected to have increased by 10.87% to $1.13 billion compared to 2020. In 2022, the Zacks consensus estimate for EPS stands at $0.94, representing growth of 9.79% over last year.

The Hershey Company

The Hershey Company is a world leader in confectionery, providing items such as chocolate, candies, mints and other snacks. HSY offers its products under well-known brands such as Hershey’s, Reese’s, Jolly Rancher and Kit Kat. The company markets and sells its products to wholesale distributors, grocery chains, mass merchants, vending machines, pharmacies and convenience stores. HSY was founded in 1894 and is based in Hershey, PA.

HSY posted strong third quarter results in October last year, posting EPS of $2.10, resulting in a surprise of +3.96% vs. estimate. Strong consumer demand for its brands contributed to the good performance. HSY’s market share remained above pre-pandemic levels, with confectionery share gain of nearly 100 basis points and snacks market share increase of 220 basis points from levels of the third quarter of 2019.

HSY posted an average earnings surprise of 4.44% over the previous four quarters. The stock has outperformed over the past year, offering investors a 35% gain over the period.

What the Zacks model reveals

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently experienced positive earnings estimate revision activity. This Zacks exclusive technique has been very useful in finding positive profit surprises. In fact, combining a No. 3 or higher Zacks ranking with a positive earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.

HSY, currently a Zacks #3 (Hold) stock, has a positive ESP (+0.90%). A beat may be in the cards for the upcoming results announcement. Zacks consensus estimate for the most recent quarter calls for EPS of $1.63, up 9.4% from the same quarter last year. We’ll see how it all plays out when HSY reports next week on February 3.rd.

The infrastructure stock boom will sweep America

A massive push to rebuild America’s crumbling infrastructure will soon be underway. It is bipartisan, urgent and inevitable. Billions will be spent. Fortunes will be made.

The only question is “Are you going to get into good stocks early when their growth potential is greatest?”

Zacks released a special report to help you do just that, and today it’s free. Discover 7 special companies looking to make the most of building and repairing roads, bridges and buildings, as well as transporting goods and transforming energy on a scale almost unimaginable.

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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.

The infrastructure stock boom will sweep America

A massive push to rebuild America’s crumbling infrastructure will soon be underway. It is bipartisan, urgent and inevitable. Billions will be spent. Fortunes will be made.

The only question is “Are you going to get into good stocks early when their growth potential is greatest?”

Zacks released a special report to help you do just that, and today it’s free. Discover 7 special companies looking to make the most of building and repairing roads, bridges and buildings, as well as transporting goods and transforming energy on a scale almost unimaginable.

Download FREE: How to Leverage Trillions of Dollars in Infrastructure Spending >>

Click to get this free report

Hershey Company The (HSY): Free Stock Analysis Report

Hostess Brands (TWNK): Free Inventory Analysis Report

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