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After Big Drop, Is it Time to Buy Hershey (HSY) Stock?
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Shares of The Hershey Company (HSY - Free Report) plunged almost 11% since Mondelez International, Inc. (MDLZ - Free Report) issued a press release on Aug 29 stating that it is no longer pursuing the probable merger with Hershey.
In June, Mondelez offered to acquire the Pennsylvania-based chocolate maker for about $22.8 billion. Mondelez had offered to pay $107 a share, half in cash and half in stock. Mondelez had expected that the merger of the two food giants would create a global leader in snacking, confectionary and complementary brands. However, Hershey’s board of directors unanimously rejected the offer in June. Reportedly, in a second bid, Mondelez offered to buy Hershey for $25 billion ($115 per share).
Mondelez eventually reached the decision after several discussions and indicated that there was no clear path toward an agreement. Reportedly, The Hershey Trust, which controls the majority of Hershey's shareholder votes, was reluctant about the sale. Moreover, significant transitional changes are underway at Hershey Trust and are anticipated to take time to complete.
The big question now for investors is whether it’s the right time to buy Hershey stock after the big drop.
Hershey’s sales trends have been weak since 2014 due to weak category trends, increased competition from broader snacking category and soft international growth due to macro headwinds.
The U.S. chocolate category is gradually slowing down. A shift in consumer preference toward healthier snacks like nuts and increased competition from the broader snacking category is lowering the demand for chocolate. Moreover, changing shopping habits in the U.S., like channel shifting and e-Commerce, are hurting the chocolate category growth. In fact, the company is witnessing chocolate category softness in key international markets like China as well.
Hershey’s lower-than-expected performance compelled it to lower its sales guidance twice this year.
Had Hershey accepted Mondelez’ offer, it would have been synergistic for the company - giving it the necessary diversification from its chocolates/sugary confectionery products which are gradually seeing lower demand.
As it is Hershey has been trying to shift focus to snack items and more premium products. In this regard, it launched Reese’s Snack Mix and Hershey’s Snack Bites canister this year.
Last year in March, Hershey acquired a Californian producer of premium jerky products, KRAVE Pure to enter the fast growing meat snacks market.
The Apr 2016 acquisition of New York-based barkTHINS premium chocolate snacking brand was also targeted on building the company’s better-for-you snacks portfolio.
However, it’s not all grim for Hershey.
Though sales have been weak, its margins have been better supported by supply chain savings and productivity gains. Moreover, in order to improve sales, Hershey is increasing innovation activity, marketing investments, making strategic acquisitions and diverting focus to snack items.
However, we suggest it is better to remain on the sidelines until these efforts lead to some significant sales and volume improvement.
Stocks to Consider
Hershey carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer staples sector include Ingredion Incorporated (INGR - Free Report) and Omega Protein Corporation , both sporting a Zacks Rank #1 (Strong Buy).
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After Big Drop, Is it Time to Buy Hershey (HSY) Stock?
Shares of The Hershey Company (HSY - Free Report) plunged almost 11% since Mondelez International, Inc. (MDLZ - Free Report) issued a press release on Aug 29 stating that it is no longer pursuing the probable merger with Hershey.
In June, Mondelez offered to acquire the Pennsylvania-based chocolate maker for about $22.8 billion. Mondelez had offered to pay $107 a share, half in cash and half in stock. Mondelez had expected that the merger of the two food giants would create a global leader in snacking, confectionary and complementary brands. However, Hershey’s board of directors unanimously rejected the offer in June. Reportedly, in a second bid, Mondelez offered to buy Hershey for $25 billion ($115 per share).
Mondelez eventually reached the decision after several discussions and indicated that there was no clear path toward an agreement. Reportedly, The Hershey Trust, which controls the majority of Hershey's shareholder votes, was reluctant about the sale. Moreover, significant transitional changes are underway at Hershey Trust and are anticipated to take time to complete.
The big question now for investors is whether it’s the right time to buy Hershey stock after the big drop.
Hershey’s sales trends have been weak since 2014 due to weak category trends, increased competition from broader snacking category and soft international growth due to macro headwinds.
The U.S. chocolate category is gradually slowing down. A shift in consumer preference toward healthier snacks like nuts and increased competition from the broader snacking category is lowering the demand for chocolate. Moreover, changing shopping habits in the U.S., like channel shifting and e-Commerce, are hurting the chocolate category growth. In fact, the company is witnessing chocolate category softness in key international markets like China as well.
Hershey’s lower-than-expected performance compelled it to lower its sales guidance twice this year.
Had Hershey accepted Mondelez’ offer, it would have been synergistic for the company - giving it the necessary diversification from its chocolates/sugary confectionery products which are gradually seeing lower demand.
As it is Hershey has been trying to shift focus to snack items and more premium products. In this regard, it launched Reese’s Snack Mix and Hershey’s Snack Bites canister this year.
Last year in March, Hershey acquired a Californian producer of premium jerky products, KRAVE Pure to enter the fast growing meat snacks market.
The Apr 2016 acquisition of New York-based barkTHINS premium chocolate snacking brand was also targeted on building the company’s better-for-you snacks portfolio.
However, it’s not all grim for Hershey.
Though sales have been weak, its margins have been better supported by supply chain savings and productivity gains. Moreover, in order to improve sales, Hershey is increasing innovation activity, marketing investments, making strategic acquisitions and diverting focus to snack items.
However, we suggest it is better to remain on the sidelines until these efforts lead to some significant sales and volume improvement.
Stocks to Consider
Hershey carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer staples sector include Ingredion Incorporated (INGR - Free Report) and Omega Protein Corporation , both sporting a Zacks Rank #1 (Strong Buy).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>