Hershey Analyst Turns Bullish As Retail Sales Rise

Piper Sandler's prior cautious stance on Hershey Co HSY was based on valuation concerns, and the stock's 24% decline since March now supports a bullish tone, the sell-side firm said this week. 

The Hershey Analyst

Michael Lavery upgraded Hershey Company from Underweight to Overweight with a price target lifted from $134 to $138.

The Hershey Thesis

Hershey's stock is now trading at 18.5 times 2021 EPS, which is below its 10-year average of 20.5 times and its peak of 26.0 times in September 2019, Lavery said in a Tuesday upgrade note. (See his track record here.)

Beyond the stock's valuation, the company should benefit from the 23% decline in cocoa prices since February, which will ease any prior 2021 cost of goods sold concerns, he said. 

The snack company should still be able to perform well in the Easter season despite the ongoing coronavirus pandemic, Lavery said. Hershey's representatives can help with in-store displays if grocers are stretched thin amid strong traffic, the analyst said. 

Chocolate and other treats are also seen as a "comforting" item and hope of a return to normalcy, he said. 

Retail sales in the grocery channel were up 5.1% for the week ended March 8, and the following weeks could be up by a factor of two to three, Lavery said. 

The strong gains at grocery stores should mostly offset lost sales from stores (i.e. Times Square), travel retail and food service channels, the analyst said. 

Finally, Hershey's should be able to show about 2% organic revenue growth and 6% to 7% average EPS growth over the next two years, according to Piper Sandler. 

HSY Price Action

Hershey shares were trading 0.57% higher at $122.61 at the time of publication Wednesday.  

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