Investing

Twinkie maker Hostess sees record sales at Walmart and Sam's Club, so JP Morgan says stock is a buy

Key Points
  • Twinkie maker Hostess is enjoying a sales rebound at the nation's largest retailer, J.P. Morgan says.
  • Hostess sales to Walmart and Sam's Club hit an all-time high in the first quarter, and shipments in a key segment are accelerating in the current quarter.
  • J.P. Morgan adds Hostess to its Analysts Focus List and bumps up its price target by $2 to $16.
Hostess Twinkies
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Twinkies are having a moment — specifically at Walmart and the retailer's Sam's Club outlets.

First-quarter earnings show Twinkie maker Hostess is enjoying a sales rebound at the nation's largest retailer, earning the industrial baker a spot on J.P. Morgan's Analysts Focus List. The investment bank already had an overweight rating on shares of Hostess, but on Thursday, it bumped up its price target by $2 to $16, suggesting the stock will jump 23% by year-end.

The news sent Hostess' stock surging by 6.3% Thursday morning.

Following a period of Hostess losses at Walmart, revenues there now look like a tailwind for the baker, J.P. Morgan said.

"In our follow-up call with the company, management seemed to indicate that its recovery with a large customer (Walmart, surely) was merely on track. This may be conservative," J.P. Morgan analysts Ken Goldman and James Allen said in a research note.

Hostess sales to Walmart and Sam's Club hit an all-time high in the first quarter, and the company's shipments to retailers beyond the food, drug and convenience stores segment "accelerated greatly" during the first few weeks of the second quarter, J.P. Morgan said.

The bank also believes Hostess' recently acquired Cloverhill Bakery will soon flip from a headwind to a tailwind, and argues that high-quality metrics like sales and gross profit margin are now driving earnings.