Morningstar

Morningstar, Inc.

Equity Bottom-Up

Although the previous owners of the Hostess brand filed for bankruptcy in 2004 and 2012, we contend it wasn’t due to a lack of brand equity but due to highly inefficient manufacturing and distribution systems, a powerful unionized workforce, combined with a high debt load. We believe the Hostess brand’s demonstrated pricing power, with the brand selling at a consistent premium to its branded competitors, provides evidence of an intangible asset. In addition, we believe Hostess is a valued…

We don’t expect to materially alter our $14.40 fair value estimate for narrow-moat Hostess, as first-quarter results largely aligned with our outlook. However, the discount to our valuation has compressed as shares popped in the mid- to high-single-digits in pre-market; we suggest investors await a more attractive opportunity to build a position
After three quarters of flat or declining organic growth, revenue bounced back, to the tune of 3.5%, driven by a 2% bump in pricing as well as the…

<p>We are modestly increasing our fair value estimate for Hostess Brands to $14.40 from $14.00, as lower expected marketing investments more than offset a slightly lower gross margin assumption. And we think investors should snack on this name.</p>

United States

Hostess Brands, Inc. provides packaged foods. The Company develops, manufactures, markets, sells and distributes baked sweet goods. Hostess Brands offers its products throughout the United States.

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