Lowering Price Target on Hershey Due to Weak Earnings Outlook; Reiterate Sell

6/18 - "While Hershey’s retail takeaway has moderately improved recently, we expect minimal EPS growth next year owing to further increases in brand support and commodity inflation. With further increases in advertising spending and emerging markets investment likely beyond 2009, we don’t expect Hershey to achieve its new 6-8% L-T EPS growth target before 2010. We also believe that achieving its 3-5% top line growth target will be difficult owing to weakness in the core mass-market milk chocolate category and competition in the premium segment."

"Our 12-month price target of $32 is based upon a 17x multiple on our 2009 EPS estimate, a modest premium to the current packaged food group average on 2008 estimates. While HSY’s fundamentals hardly warrant a premium multiple, market speculation about Hershey forming a growth-enhancing joint venture with a global confecti...