Hershey (HSY) Slammed as Morgan Stanley Downgrades, Sees Strength as 'Unsustainable'

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.

You May Also Be Interested In

• Morgan Stanley Double Downgrades AU Optronics (2409:TT) (AUO) to Underweight
• KKR and Impilo Announce Strategic Partnership Together With Management in Rare Disease Platform Immedica Pharma
• Lake Street Capital Markets Starts Research Solutions Inc. (RSSS) at Buy