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

Key Points
  • Bank of America upgrades Hershey to buy from underperform.
  • Its 12-month price target is raised to $120 a share from $92, representing a 15 percent gain.
  • The firm cites the company's improved organic sales, operating profit growth and strong balance sheet, forecasting 10 percent annual total shareholder returns.
Hershey Co. candy mascots stand outside of the company's Chocolate World visitor center in Hershey, Pennsylvania.
Luke Sharrett | Bloomberg | Getty Images

The Hershey Co. was double upgraded by Bank of America Merrill Lynch analysts who see the candymaker'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," analysts Bryan Spillane and Jacqueline Waldman said in a note to clients Wednesday.

Bank of America upgraded Hershey all the way to buy from underperform and raised its 12-month price target to $120 a share 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 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 closed Wednesday's trading 3 percent higher.

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 analysts added.