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Hershey Investors Crave Takeover Bid

Hershey HSY Investors Crave Takeover Bid

Alexia Howard of Bernstein doesn’t expect much upside in the shares of Hershey Co HSY 0.46% following the withdrawal of Mondelez International Inc MDLZ 0.48%'s bid and weakness in the U.S. chocolate category as consumers are becoming more health conscious and avoiding added sugar.

“While there may be some support at these levels based on investors' hopes of another bid for the company, the weakness in the U.S. chocolate category and struggling presence in China present little reason to expect upside,” Howard wrote in a note.

In addition, macroeconomic pressures in China and Mondelez’s entry in to the country are weighing on sales from China.

In this environment, Hershey’s top-line goals seem increasingly tough to achieve.

“To achieve the current organic sales growth guidance of ~1.5 percent in 2016, Hershey needs ~3 percent growth in the second half, which seems fairly unlikely given the US category weakness,” Howard highlighted.

On the positive side, the analyst said benign cocoa prices and the recent cost savings should help operating margins and enable Hershey to deliver constant currency EPS of $4.26 and $4.57 for 2016 & 2017, respectively.

The analyst, who has a Market Perform rating on the stock, cut the price target by $2 to $98. At the time of writing, shares were up 0.29 percent to $95.57.

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