Hershey’s candy sales will suffer as consumers move towards healthier snacks, according to one Wall Street firm.
UBS lowered its rating to sell from neutral for the food company, citing the firm’s negative consumer survey results for chocolate sales.
“Hershey’s portfolio is over-exposed to slowing category consumption, intensifying competition, and rising cocoa prices,” analyst Steven Strycula wrote in a note to clients Tuesday. “And our UBS Evidence Lab report [survey] identifies reduced purchase frequency for everyday chocolate as preferences shift consumption to healthier snack alternatives and online purchases. These longer-tailed trends carry negative margin mix and potential distribution losses for Hershey.”
Strycula lowered his price target to $90 from $106 for Hershey, representing 9 percent downside to Monday’s close.
The company’s shares are down 3.5 percent Tuesday after the report. Its stock declined 12.5 percent so far this year through Monday versus the S&P 500’s 2 percent drop.
UBS’ survey of consumers points to “flat to negative” chocolate sales growth for 2018 and 2019, according to the analyst. Strycula said U.S. chocolate sales constitute 74 percent of the company’s revenue. He noted that cocoa and cocoa butter prices are up 30 percent year-to-date and represent 15 percent to 20 percent of Hershey’s costs.
“Our data analysis highlights increased US promotional activity in chocolate as vendors compete for distribution in a decelerating consumption category,” he wrote.
Hershey did not immediately respond to a request for comment.
