Hershey's Ongoing Margin Concerns Force Argus To Downgrade Stock

Hershey Co HSY remains a "financially strong company" with a focus on returning capital to shareholders, but that's no longer reason enough to be a buyer of the stock, according to Argus.

The Analysts

Argus analysts John Eade and Erik Kildal-Brandt downgraded Hershey from Buy to Hold.

The Thesis

Hershey offers investors a "relatively high" dividend yield of 2.8 percent and has established a reputation of increasing its dividend payouts, the analysts said in the note. On the other hand, the company best known for its line of chocolate products continues to face rising input costs and corresponding margin pressures.

Hershey may also be a victim of the weakness seen in the broader Consumer Staples segment, the analysts wrote. Specifically, consumers who shifted to generic and cheaper food alternatives when "money was tighter" are not returning to higher priced products after their economic situation improved.

Hershey's stock appears to be "fairly valued" near the $91 level, which is near its 52-week lows at a time when the stock's chart is showing a bearish pattern of established lower highs and lower lows.

Price Action

Shares of Hershey hit a new 52-week low of $89.79 Wednesday morning. At time of publication, the stock was lower by more than 1.2 percent on the day at $90.17.

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