Hershey Faces 'Big Challenges' Ahead, Credit Suisse Says In Downgrade

Consumers continue to demand more convenient retail shopping options, and this has a negative impact on confectionery and chocolate companies like Hershey Co HSY, according to Credit Suisse.

The Analyst

Credit Suisse's Robert Moskow downgraded Hershey from Neutral to Underperform with a price target lowered from $90 to $80.

The Thesis

Retailers like Walmart Inc WMT continue to develop their buy online, in-store pickup format, which reduces the likelihood of consumers making impulse purchases of chocolate products, Moskow said in the downgrade note.

The thesis is backed by Hershey itself, which acknowledged in marketing material that 25 percent of shoppers who buy items online to pick up in store have cut back on impulse chocolate purchases that are typically located at the checkout aisle, the analyst said. 

Even if Hershey's makes a major push away from retail toward the online channel, this still begs the question: will consumers add the chocolate bar they would have otherwise bought at a checkout aisle to a digital shopping list to be consumed days later?

"Hershey's marketing materials ask us to believe it, but it all sounds rather clunky," Moskow said. 

Under a base case scenario, the analyst is modeling that in-store pickup of online orders and home delivery will account for 20 percent of all grocery sales. This model results in a total confectionery sales decline of 8-12.5 percent, which translates to a 3-percent decrease in Hersheys' sales by 2025, or an annual headwind of 0.5 percent, Moskow said. 

Price Action

Hershey shares were falling 3.38 percent at the time of publication Wednesday. 

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