Analyst: Hershey Co. U.S. Competition Stiffens; Latin America Slows Down

Hershey Co (NYSE: HSY) shares are off 10 percent in the past three months and an analyst said Monday that he's cautious on the stock heading into its first-quarter earnings report.

The company, set to post results Thursday, is facing increased U.S. competition for its confectioneries from the likes of privately held Mars Inc., while Hershey's markets in Mexico and Brazil are beset by economic slowdowns.

Deutsche Bank's Eric Katzman also said the company's U.S. product line-up is weak in the fast-growing category of premium chocolates.

Katzman expects Hershey will post adjusted first-quarter earnings of $1.16 a share, a tad below the consensus, yet Katzman nudged his price target up 2 percent to $103.

Related Link: Why Is Citi Removing Hershey From Its U.S. Focus List?

Hershey traded recently at $98.47, down $1.80.

Hershey in September completed its $585 million acquisition of Shanghai-based Golden Monkey, while earlier this year it bought beef jerky maker Krave for a reported $200 million to $300 million.

Katzman said China's economic slowdown and clouded market information may create integration problems for Golden Monkey, while the as-yet unprofitable Krave could offer both growth opportunities as well as a distraction from Hershey's core product lines.

The 10 percent premium at which Hershey shares currently trade above company peers is well below Hershey's average of between 20 percent and 25 percent, Katzman said.

Upcoming questions for management in Katzman's book include what's driving the company's elevated corporate expense relative to peers, and whether Hershey's recent increased spending on marketing is having the desired effect.