Twinkie Parent Hostess Cheered for Cookie Company Purchase

(Bloomberg) -- Hostess Brands Inc.’s move into the cookie business through the planned acquisition of Voortman Cookies has analysts applauding as it diversifies the maker of Twinkies product line with a top player in crème wafers and sugar-free cookies -- a better-for-you product. Voortman also provides Hostess with a footprint in Canada, where it currently has none.

Hostess agreed to the $320 million all-cash purchase of Ontario-based Voortman on Monday, according to a statement from both companies. “The Voortman acquisition achieves two key objectives central to our thesis: 1) diversifies the portfolio with another valuable niche brand that can leverage Hostess’s vast distribution and 2) brings capabilities in a category which the Hostess brand has essentially no exposure to historically (cookies),” DA Davidson analyst Brian Holland told clients in a note. He rates Hostess a buy, and raised his price target to $17 per share -- matching a Street high -- from $16.

UBS’ Steven Strycula also views the deal positively. “We think Voortman can add value for Hostess shareholders on several fronts,” he wrote, citing:

• Hostess gains entry into “faster-growing snack categories such as wafers and sugar-free cookies with a #1 brand equity position”
• Voortman will get “notable shelf-space opportunity” at convenience stores, as well as drug and grocery stores, because of Hostess’ “more expansive” U.S. distribution network
• The Voortman business lines are gross-margin accretive to Hostess and financially accretive to earnings per share
• A Hostess/Voortman combination offers at least $15 million in synergies

Strycula rates Hostess shares “buy,” with a price target of $17.

Morgan Stanley analyst Pamela Kaufman believes that the deal has the “potential to offer an attractive return profile” given opportunities for sales growth and cost synergies. But Kaufman sees execution risk as Hostess’ “ability to deliver on its optimistic synergy targets (~17% of Voortman sales) depends on a seamless transition” towards its warehouse distribution model. She maintained her equal-weight rating, and tweaked her per-share price target to $15 from $14 to reflect $34 million in Voortman Ebitda in 2021.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

©2019 Bloomberg L.P.