Is Hostess Brands Still a Sweet Investment or a Sugar High About to Crash?

After a yearly gain of nearly 30%, does TWNK stock have more runway? 

Hostess Brands (NASDAQ: TWNK) was scheduled to report earnings after the market closed on November 3. Instead it will be reporting on Tuesday, November 9 after the closing bell. It’s not entirely unusual for a company to move its earnings report, but when a company moves an earnings report by more than a few days, there can be reason for concern. 

However, in announcing the new date, Hostess Brands did confirm its full-year guidance. The only difference to the guidance it issued at the Barclays Global Consumer Staples Conference in September was a positive adjustment to adjusted net revenue growth. Hostess now says they are guiding to a growth rate of between 9% and 10% up from a range of 7.5% to 9%.  

All of this is in line with a company that is in the top quartile of its peer group in terms of organic revenue growth, adjusted EBITDA margin, and free cash flow conversion.  

TWNK Stock is at an All-Time High 

If you’re an investor over the age of 35, it may be easy to forget that this is not the same Hostess Brands that you remember as a child. That is to say, many of the products are the same; but the “original” Hostess company filed for bankruptcy in 2012. It’s since been brought back to life by its parent company The Gores Group and began publicly trading in 2015.  

And for the first few years of trading, investors didn’t have much to show for their investment. TWNK stock gained 37% over the span of four years. While that’s not a bad return, it’s far below the 50% gain of the S&P 500 Index over that same period of time.  

But TWNK stock is telling a different story since the onset of the Covid-19 pandemic. In 2021 alone the stock is up 29% and since the sell-off in March 2020, the stock is up 78%.  

Like a good sugar high, does this mean a crash is likely? Or does TWNK stock still have room to move higher? 

Navigating the Supply Chain Crisis 

In Hostess Brands previous earnings report, management cited the company’s “agile supply chain” as a reason for their revenue gains which was nearly 11% higher than the prior quarter. However, while the company may be getting its products on store shelves, it is not immune to the issues affecting the broader economy. 

On the call, management cited rising inflation and labor shortages as its biggest near-term challenges. For now, in addition to internal initiatives to driving down costs, the company is managing to pass along some of this cost at retail. Investors will want to monitor this closely when the company reports earnings.  

A Solid Balance Sheet 

In addition to observing any pricing concerns, investors will want to pay attention to see if there is any change to the company’s balance sheet. Hostess was benefiting from strong growth in its operating cash flow to work down its net debt and through July had repurchased approximately 1.5 million shares.  

What Do the Analysts Say? 

Hostess Brands isn’t widely covered by the analyst community. According to MarketBeat there are only five analysts that have issued ratings for TWNK stock in the last 12 months. The consensus price target is $19 which is slightly lower than the stock price at the time of this writing.  

However, Credit Suisse group initiatied coverage of TWNK stock in mid-October with an overweight rating and a $22 price target. That follows an upgrade from Morgan Stanley (NYSE:MS) in September that boosted its price target to $20.  

Investors largely seem to be shrugging off the announcement of the earnings report delay. And without any other news to move the stock price, it may be safe to assume there is nothing ominous to report. If you currently own TWNK stock, a hold is justified. But if you’re looking to enter a position you may want to wait a couple of days to make sure there’s no negative surprise before earnings.