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Why Hershey Co. Isn't Such a Sweet Selection

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Hershey Co.  (NYSE: HSY  ) sank 2% today after Goldman Sachs downgraded the chocolate-products specialist from neutral to sell.

So what: Along with the downgrade, analyst Jason English planted a price target of $90 on the stock, representing about 12% worth of downside to yesterday's close. While momentum traders might be attracted to Hershey's price strength during the past year, English's call could reflect a growing sense on Wall Street that its valuation is becoming a bit stretched.

Now what: According to Goldman, Hershey's risk/reward trade-off isn't too appealing at this point. "HSY has been on a multi-year beat-and-raise cycle on the back of above-trend North American chocolate gains, productivity realization and cost relief," noted English. "We believe this cycle is ending and see risk to expectations and an inflated valuation. ... We lower our FY14-FY16 EPS estimates by 3-6% to reflect lower sales and margin expectations." When you couple that downbeat view with Hershey's 25-plus forward P/E, it's tough to disagree with Goldman's bearishness.

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  • Report this Comment On April 09, 2014, at 1:30 PM, lutherwilliam wrote:

    Ignore the Wall Streeters' valuation of HSY, which is based on past numbers and misleading comparisons with Mondelez and the Nestle conglomerate. This time Cramer, who recommended the company last week, got it right. It's #1 in chocolate despite barely penetrating the international market--as yet. Moreover, it's much more than chocolate. Kid's are buying "Twist n Pull" cherry Twizzlers like it was candy heroin, and the strands of the "peelers" are appearing as edible bracelets on small wrists in and out of the classroom. Look for this proactive "defensive stock" to move higher in any market environment, and don't expect it to come to you. Limit orders may not be the way to play this explosive stock.

  • Report this Comment On April 11, 2014, at 10:13 PM, BradReeseCom wrote:

    Hi Brian,

    Well, during the upcoming HSY "restructuring," the "nonunion" 57-year old H.B. Reese Candy Company manufacturing plant located at 925 Reese Avenue, Hershey, PA will be "targeted for closure" by the HSY executive management team.


    Brad Reese

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/3/2015 10:57 AM
HSY $89.92 Up +1.30 +1.47%
The Hershey Compan… CAPS Rating: ****