SPY334.89+2.52 0.76%
DIA277.50+3.08 1.12%
IXIC11,167.51+82.26 0.74%

BofA Double Upgrades Kellogg, Downgrades Hershey's

Bank of America's bearish thesis on Kellogg Company (NYSE: K) dates back to late 2016. The firm said Friday that it can no longer be justified ahead of a year of expected growth in 2020.

Benzinga · 12/20/2019 16:05

Bank of America's bearish thesis on Kellogg Company (NYSE: K) dates back to late 2016. The firm said Friday that it can no longer be justified ahead of a year of expected growth in 2020.

At the same time, BofA dropped its bullish case for Hershey Co (NYSE: HSY) on valuation concerns. 

The Analyst

BofA Securities analyst Bryan Spillane upgraded Kellogg from Underperform to Buy with a price target lifted from $53 to $75.

The analyst downgraded Hershey from Buy to Neutral with a price target lowered from $165 to $155.

Kellogg: Invest In Tony The Tiger

Kellogg's past two years have been defined by improving sales growth but lagging profits, Spillane said in the Friday upgrade note. This trend should improve in 2020, as the company completed multiple acquisitions and divestitures to improve its portfolio, the analyst said

The food company also deserves credit for investing in the proper categories and brands such as Incogmeato, he said. 

Organic sales could rise by 2.3% in 2020 on 0.1% net sales growth, according to BofA. 

A broader market trend of investing shifting to growth and momentum stocks could bode well for Kellogg's, Spillane said.

The stock boasts a "modest" valuation at 15.7 times fiscal 2021 PE, a "clean" balance sheet at 3.3 times debt/EBITDA and a "solid" dividend yield at 3.7%, the analyst said. 

Related Link: Kellogg Trades Higher On Q3 Earnings Beat

Hershey: Cash In On Chocolate Chips

Hershey is expected to continue executing well in 2020 after a year of better sales and profit growth versus peers in 2019, Spillane said in a Friday downgrade note.

The stock's strong performance over the past year implies the stock is now trading at a 25% premium to the market and a 15% premium to the consumer staples group, the analyst said. 

Unlike Kellogg's, the sentiment for Hershey's could be impacted by the broader shift to growth and momentum stocks, he said.

The trend dictates investors will pay more for growth when it is scarce and pay less when growth is easier to find, according to BofA. 

Price Action

Kellogg shares were trading 2.16% higher at $68.22 at the time of publication Friday, while Hershey shares were down 0.16% at $146.44. 

Related Link: Hershey's Earnings: Sweet Treat Or Sour Candy?

Public domain photo via Wikimedia