Yahoo Finance Hershey Hit With Sell Call as High Prices Dent Chocolate Sales
(Bloomberg) -- Jefferies is turning more cautious on Hershey Co. shares as consumers curb their snacking and pull back on higher-priced chocolates in particular.
Most Read from Bloomberg
Analyst Rob Dickerson downgraded his rating on the maker of Reese’s and Dot’s Pretzels to underperform from hold Thursday, warning that chocolate is “notably underperforming” other snacking categories. While elevated prices and a pressured consumer are impacting the US snack industry broadly, volume trends for chocolate have been weaker in recent years.
“The underperformance is a function of chocolate’s widening price gaps to other snacking categories, consumers’ increasing caution with food spend, and a generational shift to non-chocolate confection, all potentially redefining the value equation for US chocolate,” he wrote in a note.
Dickerson cut his 12-month price target for Hershey shares to a Street-low $163 from $184, implying a 15% drop from Wednesday’s close. The stock fell as much as 1% Thursday, furthering its underperformance against the S&P 500 Packaged Foods Index in the past year.
Dickerson said chocolate had already been priced at a premium to other snacks, but inflation in recent years has widened the spread, and he sees that trend continuing.
Meanwhile, Hershey and other chocolatiers are grappling with elevated cocoa prices. Should Hershey have to raise its prices further to offset cocoa costs, that would raise the risk of accelerating volume declines, Dickerson said. Cocoa futures have retreated from a record in April as better weather in West Africa fuels hopes for improved harvests, but remain up sharply since the start of the year.
Hershey lowered its sales and earnings outlook for the year in August following weaker-than-expected second-quarter results. The company is expected to report third-quarter results in late October.
Dickerson is one of just three analysts tracked by Bloomberg who recommend selling Hershey shares. The stock also has five buy ratings and 19 holds, with an average price target that suggests roughly 6% return potential over the next 12 months.
--With assistance from Katrina Compoli.
Most Read from Bloomberg Businessweek
This Camera Went Viral Two Years Ago. You Still Can’t Buy One
How Harris’ Campaign Finally Made Biden’s Meme Strategy Work
Palantir’s CEO and Wall Street Annoy Each Other Straight to the Bank
©2024 Bloomberg L.P.
