Why Hershey (HSY) Stock Is Retreating Today

NEW YORK (TheStreet) -- Shares of Hershey Co. (HSY) are falling -2.30% to $92.48 on heavy trading volume on Wednesday, due to a ratings downgrade, an increase in prices, and weak guidance.

This morning Hershey was downgraded to "neutral" from "outperform" at Credit Suisse (CS), due to the company's weak 2014 second quarter guidance. Credit Suisse also cut its price target on the stock to $101 from $108.

Hershey is expecting its second quarter net sales to increase 4%, below the company's previous forecast of 5% to 7%.

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Earnings per diluted share are expected to be in line with Hershey's previous guidance between 75 cents and 77 cents.

Additionally, the chocolate and sugar confectionery announced an increase in wholesale prices across the majority of its U.S., Puerto Rico, and export portfolio.

Separately, TheStreet Ratings team rates HERSHEY CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate HERSHEY CO (HSY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 49.20% is the gross profit margin for HERSHEY CO which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.48% is above that of the industry average.
  • HERSHEY CO's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HERSHEY CO increased its bottom line by earning $3.61 versus $2.89 in the prior year. This year, the market expects an improvement in earnings ($4.11 versus $3.61).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Food Products industry average. The net income increased by 4.4% when compared to the same quarter one year prior, going from $241.91 million to $252.50 million.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: HSY Ratings Report
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