Mondelez Still Has A Taste For Chocolate

In a research report on Thursday, Robert Moskow of Credit Suisse noted that Mondelez announced during a presentation to investors that it plans on expanding its presence in the U.S. chocolate market. The company will introduce a new Oreo-Milka co-branded product and also expand its Green & Black brands.

Related Link: JPMorgan Reinstates Neutral On Hershey

Moskow pointed out that the domestic expansion coincides with Mondelez's recent announcement it will enter the chocolate market in China and sell 12 unique items under the Milka brand.

However, the analyst suggested that the new expansion announcements is a tactic to "increase pressure" on Hershey Co HSY to resume merger talks. Specifically, if Hershey's sales trends continue to decelerate, perhaps at the expense of Mondelez, then Hershey's board of directors could return to the negotiating table and reopen discussions.

On the other hand, Mondelez will need to allocate "significant" resources behind its new product launches while it also comes "without a guarantee" that it will result in Hersey returning to the table. In addition, Mondelez could also be distracted from its focus on the core business which faces its own sets of competitive and macro challenges.

"To make matters more complicated, the Oreo-Milka product itself presents a confusing picture for consumers with the 'Oreo' brand displayed on the package and the unfamiliar 'Milka' brand stamped on the chocolate tablet," the analyst wrote.

Nevertheless, Moskow believes that while the snack category has seen its growth slow down, consumers "do not seem to be in any hurry to stop treating themselves to occasional indulgences." As such, the analyst still has a "strong appreciation" for Mondelez as a stand-alone entity and continue to believe the stock will outperform its peers as it is on track toward achieving or even exceeding its 2018 operating margin target of 17 to 18 percent.

Shares of Mondelez remain Outperform rated with an unchanged $51 price target.

At time of writing, Mondelez was flat on the day and Hershey was down 0.7 percent at $98.44.

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