On Monday, Bernstein SocGen Group adjusted its rating on Hershey (NYSE:HSY) stock, shifting from "Outperform" to "Market Perform" and reducing the price target to $205 from the previous $230. The revision comes after a period of underwhelming performance in chocolate volumes, despite initial optimism following the launch of a new product.
The firm had initially upgraded Hershey earlier in 2024, anticipating a surge in sales after the introduction of Reese's Caramels in November 2023. This product marked the first significant launch since the pandemic and was expected to boost volumes significantly post the completion of Hershey's SAP transition in late 2Q:24. However, the anticipated volume rebound has not materialized, as chocolate category volumes have continued to decline.
Hershey has been facing challenges with its chocolate volumes, which have remained low even as the company began to compare against weaker sales periods in the past. This persistent weakness in sales is a key factor behind the downgrade. Moreover, rising cocoa input costs throughout 2024 have exacerbated the situation, putting additional pressure on Hershey's profit margins.
The analyst noted that while there might be some potential relief with news on the main crop in the upcoming weeks, any significant recovery in Hershey's margins is not expected until 2026. This projection of a delayed improvement in financial performance has influenced the decision to adjust Hershey's stock rating and price target accordingly.
In other recent news, Hershey's financial outlook has been the subject of several analyst revisions. UBS downgraded Hershey's stock from Buy to Neutral, citing concerns over optimistic 2025 earnings projections amidst persistent cost pressures and an uncertain demand environment.
Meanwhile, Jefferies, Barclays, and Citi have also downgraded Hershey's stock due to potential challenges from the company's pricing strategy and increased competition in the snack market, weaker consumption trends, and concerns over gross margins, respectively.
On the other hand, Hershey announced a 12% price increase on about half of its product portfolio, a move that RBC predicts will have a positive impact on the company. This comes in response to Mars, a competitor, planning price hikes across its product range.
In management news, Hershey has appointed Michael Del Pozzo as the new President of its U.S. Confection segment. Del Pozzo, who brings extensive experience from PepsiCo (NASDAQ:PEP), is expected to drive Hershey's growth initiatives within the United States.
These are some of the recent developments concerning Hershey. Despite the challenges, the company continues to implement strategic measures to navigate the current market environment.
InvestingPro Insights
To complement Bernstein SocGen Group's analysis of Hershey (NYSE:HSY), recent data from InvestingPro offers additional context. Despite the challenges highlighted in the article, Hershey maintains a strong dividend profile. An InvestingPro Tip reveals that the company has raised its dividend for 14 consecutive years and has maintained dividend payments for an impressive 54 consecutive years. This consistency in dividend growth could be appealing to income-focused investors, even as the company navigates current market challenges.
However, aligning with the concerns raised about Hershey's performance, InvestingPro data shows that the company's revenue growth in the last twelve months as of Q2 2024 was modest at 1.44%, while quarterly revenue growth for Q2 2024 saw a significant decline of 16.7%. This data supports the analyst's observations about underwhelming chocolate volumes and sales performance.
On the valuation front, an InvestingPro Tip indicates that Hershey is trading at a high P/E ratio relative to near-term earnings growth, with a PEG ratio of 5.38 as of Q2 2024. This suggests that the stock may be overvalued considering its current growth prospects, which aligns with the downgrade to "Market Perform."
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Hershey, providing a broader perspective on the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.