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Stock Strategist

Hostess Has the Brands With the Mostest

A new distribution model expands sales channels while freeing up resources for investment.

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While its lineup cuts against trends toward healthier eating, we believe  Hostess (TWNK) should benefit from its brand portfolio as it rebuilds distribution following its 2012 bankruptcy. Although Americans profess a preference for better-for-you items as snacking frequency rises, the desire for sweet, indulgent fare remains. With well-established brands that demonstrate pricing power, Hostess should outperform its rivals, in our view.

The company has significant opportunities to recover sales lost during its hiatus, build distribution in new channels, and capture attention through innovation. Its warehouse distribution architecture has allowed it to build a strong presence in dollar stores and a larger profile in drug stores, and we believe Hostess should be able to leverage its brands in service of new freezer case and in-store bakery offerings.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.