Argus Downgrades Hershey To Hold; Maintains 5-Year Recommendation At Buy

Hershey Co (NYSE: HSY) has unanimously rejected the $23 billion purchase offer from Mondelez International Inc (NASDAQ: MDLZ).

Argus’ David Coleman downgraded the rating on Hershey from Buy to Hold.

Stock Surged On Rejection

Hershey’s share price spiked on the news of rejection to an intraday high of $117.79 on June 30 before closing at $113.49.

“The board stated in the press release that the offer “provided no basis for further discussion” with MDLZ,” Coleman mentioned.

The analyst maintained a favorable view of the company’s long-term outlook, both in the United States as well as internationally.

Coleman believes the recent spike was associated, at least initially, with the rejection of the takeover offer.

Related Link: Bloomberg: Hershey's Offers Mondelez A Much Needed Exposure To The U.S. Market

“Hershey has a unique ownership structure that makes a takeover complicated. The majority owner is currently saying that a 10 percent premium to the stock is not enough,” the analyst explained.

Valuation Unjustified

Coleman believes the current share price is unjustified and investors in the stock could consider taking profits at the current high levels.

In fact, Hershey has outperformed the S&P 500 over the past three months, gaining 1 percent versus the loss of 1.5 percent seen by the S&P 500.

The stock has also outperformed over the past year, gaining 21.6 percent, as compared to the decline of 11.5 percent for the S&P 500.

“As the stock has remained far above the pre-offer price, we think that investors are expecting that there will be higher bids for Hershey,” Coleman added.

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