NEW YORK (AP) -- An analyst cut his rating and price target for Ingredion on Monday, saying that declining sugar prices may hurt potential price hikes for the company's sweeteners.
THE SPARK: David Driscoll of Citi Investment Research lowered Ingredion to "Neutral" from "Buy" and reduce its price target to $77 from $86. The Westchester, Ill., company makes ingredients like high fructose corn syrup, caramel color, starches and refined corn oil.
THE ANALYSIS: Driscoll said in a client note that U.S. sugar prices dropped about 42 percent last year, while sugar prices in Mexico fell approximately 28 percent. This put sugar prices closely on par with high fructose corn syrup prices in the fourth quarter — a critical time because that is when contracts for 2013 occur, the analyst explained.
"We believe this likely placed a cap on the upper bounds of negotiated corn sweetener prices," Driscoll wrote.
The analyst feels Ingredion could have a more favorable environment if there's a big corn crop in the U.S., but predicts this could be nine to 10 months off and is highly dependent on the weather.
SHARE ACTION: Shares of Ingredion Inc. fell $3.10, or 4.4 percent, to $66.90 in afternoon trading. The stock has traded between $45.30 and $70.42 over the past year.