Hershey takes a hit after Credit Suisse downgrades stock to 'Underperform'

The switch in consumer trends to more convenient retail shopping experiences has hit Hershey hard after Credit Suisse (CS) lowered Hershey (NYSE:HSY​) to an ‘Underperform’ rating after previously setting food stock at ‘Neutral’.

Expected higher cocoa prices, and more importantly, the reduction of impulse chocolate purchases after Hershey’s own research indicated​ 25% of shoppers who buy items online to pick up in store or at a requested location (click and collect) have cut back on ‘in the moment’ purchases that are conveniently located at the checkout aisle.

Credit Suisse analyst Robert Moskow downgraded Hershey from ‘Neutral’ to ‘Underperform’ with a price target lowered from $90 to $80.

"We believe that the shift in shopping patterns to more convenient methods like online and click-and-collect will materially reduce the number of impulse purchase occasions for confectionery products merchandised at traditional checkout aisles​," said Moskow.

"We expect Hershey’s operating margin to head lower over the next two years as it increases its investment spending to contend with this challenge and struggles to raise prices to offset higher cocoa input costs​," he said.

Hershey remains a dominant player in the US with the largest share (roughly 44%, compared to nearest rival Mars - 29%) of the confectionery market.

CS dropped its price target to $80 from $90. The $80 PT works out to 15.7X the firm's 2019 EPS estimate.

At close on Wednesday 13 June, after the CS announcement was made, shares fell in Hershey by 2.31%.