The firm said it lowered its rating on the chocolate and candy maker based on a valuation call, as Hershey is trading at a 25% premium to its peers.
"We see valuation as fairly discounting possible 2015 tailwinds," Deutsche Bank said in an analyst note.
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Deutsche Bank said a number of concerns regarding Hershey are giving them pause including "a possibly more promotional U.S. category as privately held Mars tries to regain share, high end chocolate increasing share in the U.S. where Hershey continues to be underrepresented, another possible reduction of LT margin goals from Hersey's international markets, and Canada FX headwinds."
Shares of Hershey closed at $110.78 on Thursday afternoon. The firm has a $111 price target on the stock.
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, solid stock price performance, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HSY's revenue growth has slightly outpaced the industry average of 2.0%. Since the same quarter one year prior, revenues slightly increased by 5.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- HERSHEY CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. 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 ($4.02 versus $3.61).
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- 46.54% is the gross profit margin for HERSHEY CO which we consider to be strong. Regardless of HSY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HSY's net profit margin of 11.40% compares favorably to the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Food Products industry and the overall market, HERSHEY CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: HSY Ratings Report