Why Hershey's Scary Halloween Projections Could be Overblown

If Easter's candy sales are any indicator, Halloween's cancellation won't hit Hershey's sales as badly as feared

Deputy Editor
Sep 29, 2020 at 12:47 PM
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Hershey Co (NYSE:HSY) is getting a sweet boost from BMO today, after the analyst upgraded the candy concern to "outperform" from "market perform" and hiked its price target to $163 from $150. The analyst called HSY a "compelling investment" adding that its short-term concerns over the cancellation of Halloween impacting its sales are likely overestimated, seeing as its seasonal sales for Easter exceeded expectations. At last check, HSY is up 0.9% at $141.72. 

Now, HSY is going head-to-head with its 20-day moving average -- a previous region of support that the stock fell below in early September. While the equity's pullback from its six-month peak of $152.18 sent it careening back below its late-July post-earnings bull gap, it is once again bumping up against the $142 level, which acted at support in August. Longer term, the stock is down 3.4% year-to-date. 

The majority of analysts haven't yet followed BMO's lead. In fact, just two in coverage called HSY a "strong buy" coming into today, compared to 10 "hold" ratings. Meanwhile, the 12-month consensus price target of $150.13 is a 6.1% premium to current levels. 

Pessimism prevails in the options pits, too. During the past 10 days, an eyebrow-raising 7.24 puts were picked up for every call at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 98% of readings from the past year. Suggesting a healthier-than-usual appetite for long puts of late. 

Echoing this, Hershey's Schaeffer's put/call open interest ratio (SOIR) of 1.37 stands in the 83rd percentile of its annual range. This suggests short-term option traders are unusually put-biased at the moment. 

Regardless of which stance you've chosen to take on HSY, options look like the way to go. HSY's Schaeffer's Volatility Index of 23% stands higher than just 12% of readings in the past 12 months. This means options players are pricing in relatively low volatility expectations at the moment. 

 


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