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Key Takeaways
- Jefferies analysts downgraded Hershey to underperform and lowered their price target.
- The firm said chocolate is trailing other snacks in volume growth and is being bought less frequently despite being the largest category in dollar sales.
- Inflation of cocoa prices is causing chocolate producers to face much higher costs.
Shares of Hershey Co. (HSY) was dropped to underperform by Jefferies analysts, calling chocolate “amongst the most concerning” segments of the US snack sector in a note Thursday.
The analysts dropped their price target to $163 from $184, nearly 15% below the company’s Wednesday closing price. The stock edged lower today, closing around $190.
“Elevated prices and a stretched consumer are finally impacting the US snack category,” the analysts said, with chocolate in particular trailing other snacks. Potato chips, pretzels, and cookies have seen growing volume, but chocolate hasn’t kept up as American consumers look for ways to stretch their budgets.
Rising Cocoa Prices Are a Drag
One problem for chocolate is the climbing price of cocoa, which hit all-time highs this year after years of poor harvests. The plants generally grow only near the equator, in hot and humid regions, limiting production largely to Africa.
That means “chocolate producers are facing materially higher input costs on the back of a historic inflationary super-cycle,” the analysts said. And “consumers appear increasingly to be choosing more cost-effective snacks.”
Hershey’s shares are up about 2% this year, and down over the past 12 months.