Benzinga | Apr 15, 2021 11:55AM EDT

Why Is Goldman Sachs Sweet On Hershey Stock?

Marking the strongest growth since 2014, Hershey Co (NYSE:HSY) generated robust EBIT growth in 2020 driven by gross margin expansion "that was amplified by expense controls," according to Goldman Sachs.

The Hershey Analyst: Jason English upgraded the rating for Hershey from Neutral to Buy, while raising the price target from $171 to $181.

The Hershey Thesis: The performance in 2020 was not a one-off and the COVID-19-related impact was "only a modest positive," English said in the upgrade note.

He believes 2020 "was the beginning of a three-plus-year cycle of outsized growth as the confection industry leverages its unique pricing power to expand the revenue and profit pool at a time when input costs are non-daunting."

"Mars appears to be leading the charge, presumably as it prioritizes pet and veterinarian verticals for growth. We expect Hershey to follow over time, continuing the long-standing industry practice of unified price moves," the analyst wrote.

"In our view, the result will be a top-tier growth algorithm that contrasts with a muted growth outlook for many US-centric Staples peers," he added.

HSY Price Action: Shares of Hershey had risen by 1.26% to $160.12 at the time of publication Thursday.

(Photo: Hershey)