Tigress On Food Stocks: Upgrades Hershey, Downgrades WhiteWave

Tigress Financial has revised ratings on Hershey Co HSY and WhiteWave Foods Co WWAV. The brokerage has upgraded Hershey to Buy from Neutral, while downgrading WhiteWave Foods to Buy from Strong Buy. "We believe HSY is undervalued at current levels and expect business performance metrics to improve over the next year resulting in greater shareholder value creation," analyst Ivan Feinseth wrote in a note to clients. Shares have been under pressure in part due to weakness in the Chinese chocolate market, where HSY made a significant acquisition of Shanghai Golden Monkey in 2014 and due to changing consumer habits domestically, which has dampened growth prospects in Candy, Mints and Gum (CMG). However, the analyst thinks these headwinds have been priced into the shares and expect the company to deliver increasing economic profit growth and shareholder returns over the next twelve months (NTM). In addition, better cost control and improving productivity is driving economic profit growth. While expenses are expected to pick up a bit over the NTM, as HSY looks to invest in CMG merchandising and display, Feinseth believes the firm has significant operating leverage with which to drive economic profit growth in the future. Meanwhile, analyst Philip Van Deusen downgraded WhiteWave Foods saying that many of WWAV's performance metrics continue to improve but expect growth to moderate over the NTM. "We expect top-line growth to slow over the NTM from a rate of 12.5% to 10.5%. Also, we believe that the company's operating margins will contract slightly and are forecasting WWAV's economic profit margin on sales to remain unchanged over the same period," Deusen said. Though the company's return on capital and economic profit growth are expected to increase in 2016, the analyst believes that the company's valuation is reflecting this growth. WWAV trades at 18.8x EV/EBITDAR and 40.9x EV/NOPAT; both are above the company's 3yr avg. of 18.2x and 39.3x respectively. "Given that the company continues to trade at a premium valuation we are reducing our expectation for share price appreciation accordingly," Deusen added. HSY shares were up about 1 percent at $92.68, while WWAV is down 0.18 percent at $39.66.