Taking a Bite Out of Hershey

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD ON THE STREET: Will Hershey Meet Its Forecast?

• Summary: Preliminary data suggest that Hershey Co. (HSY) will post unexpectedly weak end-of-year sales numbers. This prompted a J.P. Morgan Chase analyst to downgrade Hershey on Tuesday, resulting in a more than 4% one-day drop. Hershey has spent the past five years attempting to innovate in both products and operations -- tapping into Americans' growing taste for dark chocolate, for example, and setting up Home Depot (HD) as a marketing channel. These moves boosted the stock by over 100% between 2001 and 2005, but it has since tumbled by over 20%. The decline partly reflects market apprehension regarding the ability of the company, which relies substantially on grocery store sales (28% of revenue), to boost its representation in convenience stores, which are a growing source of candy sales. It also reflects concern over Hershey's loss of market share over the past four months to Mars brands like M&Ms and Dove. Though the J.P. Morgan Chase analyst has cut his 2006 and 2007 forecasts, others are more sanguine. A Credit Suisse analyst says concerns about Hershey's sales data may be overblown, and points out that Hershey's 2Q sales were up a solid 6.6% -- a promising indicator, in his view.
• Comment on related stocks/ETFs: Catablast Media took a closer look at Hershey's valuation and didn't find an attractive defensive play. Jim Cramer, on the other hand, regards Hershey as a worthwhile defensive stock with a good risk-reward ratio. For related stories, please see Seeking Alpha's coverage of Food and Restaurants in the Retail sector.