Hershey (HSY) Slammed as Morgan Stanley Downgrades, Sees Strength as 'Unsustainable'
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Rating Summary:
9 Buy, 20 Hold, 3 Sell
Rating Trend: Down
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Up: 13 | Down: 11 | New: 14
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Shares of The Hershey Company (NYSE: HSY) are falling 2.7% in early trading Wednesday after Morgan Stanley downgraded the stock to Underweight while bumping the downside price target to $105.00 (from $102.00).
The Hershey Company’s shares have meaningfully outperformed over the last 12 months and valuation has re-rated to a ~20% 2019 P/E premium to peers. However, analyst Matthew Grainger views HSY's current peer-leading valuation as unsustainable, given: slowing category growth and share weakness; increased reinvestment needs; and a mixed track record on strategic diversification.
Grainger agrees that HSY should see some benefit from restructuring savings and favorable input costs in the near-term, but are below consensus on HSY's 2018/19 margin expansion and sees limited scope for upside.
Morgan Stanley reduced 2018/2019E EPS by 1%/2.5% on slower sales growth and expects HSY to generate a ~6% 2017-20E EPS CAGR (8% previously). Estimates are 2-3% below consensus for 2018/19.
The $105 PT reflects a 10% premium vs. peers, and implies 8% downside at present.
StreetInsider Premium first published a variation of this article at 4:12AM ET. Try StreetInsider Premium for two weeks free here.
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