Credit Suisse Loses Appetite For Hershey, Downgrades To Neutral

Hershey Co HSY's earnings report sent the stock tumbling throughout Thursday's session and prompted at least one analyst to no longer hold a bullish stance.

The Analyst

Credit Suisse's Robert Moskow downgraded Hershey's stock from Outperform to Neutral with a price target lowered from $129 to $115.

The Thesis

Hershey's stock warrants a premium valuation versus the food group, but post-earnings the stock now merits a more narrow premium, Moskow said in a note. Prior to Thursday, the analyst's price target implied a 14 percent premium historically, but now an 11 percent premium to the food group is justified amid multiple concerning data points seen in the report.

For example, Hershey's organic sales growth slipped to 0.4 percent in 2017, which marks another year of weak growth, the analyst said. Looking forward to 2018, there are few signs of an acceleration in sales as the pipeline of new products "does not sound exciting enough." Perhaps more important, the entire confectionery category will remain under heavy competitive pressure due to rising demand for healthier snack options.

While Hershey is looking to diversify its business outside of sugar snacks through acquisitions, like the recently acquired maker of SkinnyPop popcorn, Moskow said. But the company also has a poor track record of integrating its acquisitions.