Morgan Stanley downgraded Hostess Brands ( NASDAQ: TWNK ) on Tuesday with less conviction over the food company's revenue growth trends and market share gain potential.
The firm took Hostess Brands ( TWNK ) down to an Equal-weight rating from Overweight given relative outperformance, tougher comparisons, and less scope for upward EPS revisions.
"We continue to believe TWNK is executing well through innovation and marketing investments and the sweet baked goods category has attractive long-term growth potential. However, given the stock's strength and upward estimate revisions, we believe the market is now pricing in our view," noted analyst Pamela Kaufman.
Kaufman noted that a key driver of TWNK's share price performance throughout 2022 has been sustained strong retail sales data, translating into strong revenue growth, and upward consensus estimate revisions. However, the company is now noted to be entering a period where it will be comparing against outsized growth starting in November 2021, which accelerated into Q1 of 2022, and creates tough comparisons for the next several quarters. TWNK's market share is also observed to be moderating within sweet snacks, particularly with Little Debbie products priced at an 40% discount to TWNK, which could drive trade down within the sweet snacks category.
Morgan Stanley assigned a price target of $25 to TWNK vs. the average analyst PT of $29.41.
Hostess Brands ( TWNK ) slipped 1.29% in premarket trading to $22.93, which pushed the stock bacl below its 200-day moving average.
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Hostess Brands fallls below 200-day moving average after Morgan Stanley downgrade