Hershey (HSY) Rumors Churn after Hershey Trust Board Changes; Susquehanna Weighs In and Bumps PT to $119

The Hershey (NYSE: HSY) rumor mill was a little glum today after three new appointments to the Hershey Trust Board were announced with ties to central Pennsylvania and/or to the Milton Hershey School. Susquehanna analyst Pablo Zuanic noted that not counting the two that have to step down by end of 2017, this brings the Trust Board to seven members, so six more will be announced in the next 12 months they assume, as per agreement with the AG to bring the Trust board to 13.

While on the surface these types of “backgrounds” may imply less willingness to sell HSY, Zuanic reiterates that greater and improved governance of the school, and more “financial background” people on the Trust Board may bode well for diversification (eventually).

Further, the analyst highlights the fact that the two newest members of the Trust Board (Brown and Koken), who only joined the Trust in 2016, will be the two replacements at the HSY company BoD (for the Trust representatives on the HSY BoD that have to step down). Zuanic said, this is "interesting to us, as it dilutes the Trust influence on the HSY BoD (notwithstanding the fact that the Trust controls more than 80% of the shareholder votes)."

He sees is all encouraging to HSY upside. However, they would not expect the new Trust to make such a momentous decision (diversification) until 2019 at the earliest.

"In the meantime, HSY shares trade at 10% premium to peers (22.2x 1yF PE), which in our view captures the near/medium term upside (a better innovation cycle; more aggressive profit margin targets; M&A optionality)," he comments. "Definitely not a stock to short given these various tailwinds despite the premium, but we would not see HSY outperforming the peer group in the year ahead (YTD HSY is up 5% vs. +6% for S5CONS and 5% for SPX)."

Susquehanna raised its price target on HSY to $119.00 (from $116.00) while maintaining a Neutral rating.

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