UBS analyst Steven Strycula believes Hershey's competitors can steal market share
Chocolate king Hershey Co (NYSE:HSY) was downgraded to "sell" from "neutral" by UBS analyst Steven Strycula, who also dropped his price target to $90 from $106. Citing an internal report, Strycula says consumers have been buying chocolate less frequently and have shifted to healthier snacks. Strycula also noted the big year-to-date rise in cocoa prices, which could hurt Hershey's gross margin estimates for the second half of 2018 and into 2019. He believes rivals like Mars, Nutella parent Ferrero, and Oreo maker Mondelez (MDLZ) could all steal market share.
HSY was last seen trading down 1.9% in pre-market action. It's already been a rough year for HSY stock, with the shares falling 12.5% year-to-date to close last night at $99.36. Most of these losses came from an early February bear gap, after the company reported lower-than-expected fourth-quarter earnings. While the security recently bounced from the $95-$96 area that also acted as strong support back in late 2016, its 50-day moving average has kept a tight lid on the shares in recent sessions.
There are 13 brokerage firms in total tracking the equity, and just three have anything better than a "hold" or "sell" rating. However, HSY's average 12-month price target stands up at $108.06, a nearly 9% premium to current levels and just below the levels seen right before that February bear gap. There appears to be a chance for more price-target cuts to come through if the shares continue to struggle.
Also, short interest has been picking up since bottoming in July, including a 13.9% rise in the last two reporting periods. But short interest still represents just 2.6% of Hershey's total float, suggesting there's room for more bears to pile on, which would act as yet another headwind for the stock.