Comeback Story Of The Year? SunTrust Initiates Hostess At Buy On First Day Of Trading

Just four years ago, Hostess Brands Inc. (NASDAQ:TWNK) was in a dire situation. Fans rushed to stock up on Twinkies thinking they would no longer be around for much longer following the company's Chapter 7 bankruptcy filing.

The 86-year-old brand was eventually bought out of liquidation and stayed around to fight another day.

Comeback Story Of The Year?

Circling back to today, Hostess has re-entered the market as a public company and is in the middle of a remarkable turnaround story. Amid a deflationary food industry, SunTrust has initiated coverage on Hostess with a Buy rating.

"Going forward," SunTrust anlayst said, "we believe it has the management team and infrastructure in place to outpace the indulgent snacks over the next few years."

The company has transformed its business following bankruptcy and it appears to be working. Hostess has since “significantly elevated” its profit levels through its ability to start fresh following bankruptcy and the decision made to go with a highly automated warehouse distribution model.

3 Reasons Hostess Is A Buy

• Resilient Category - While trends in the food industry have been shifting to healthier products, the indulgent snack category is stronger than ever, posting single digit growth for the last few years. With every company promoting a “better-for-you” new product, it lessens the likelihood of new competition for Hostess.
• Multiple Opportunities For Growth – Hostess has a 16 percent market share and has its sights set on eventually exceeding its pre-bankruptcy share of 22 percent. SunTrust believes the company will gain 50 basis points of share per year.
• Margins Sustainable – Margins are already well above the competition. While management has stated they likely won't go much higher, further expansion into higher margin channels and continued manufacturing efficiencies should sustain current healthy margins.

SunTrust set a $15 price target on Hostess. Shares were up nearly 3 percent at 11.78 on its first day of trading.