On Wednesday, Citi revised its price target on Hershey shares from $204.00 to $188.00, maintaining a Neutral stance on the stock. The adjustment comes ahead of the company's second quarter earnings report, set for August 1, 2024, with Citi anticipating a potential organic sales shortfall. Hershey's recent performance, particularly in the Confectionary segment, has not been strong, with year-over-year distribution losses noted throughout the quarter.
The firm's analysis suggests that Hershey may face a smaller-than-usual earnings per share (EPS) beat. This outlook is based on various factors, including shipment timings that could affect sales figures. The forecast for the second half of 2024 is also cautious, as Hershey could encounter additional sales and earnings challenges.
Looking further ahead, 2025 might present even more difficulties for Hershey due to the financial impact of higher-priced cocoa. This ingredient cost increase is expected to significantly affect the company's profit and loss statement. Citi's current position reflects these concerns, leading to the decision to stay neutral on Hershey's stock.
The firm has also placed Hershey on a negative 30-day Catalyst Watch, indicating that the short-term prospects for the stock may be under pressure. This watch is a signal to investors that upcoming events or data releases could potentially move the stock, in this case, likely due to the anticipated challenges in sales and earnings.
In other recent news, Hershey has been a focal point of financial analysis due to the surge in cocoa costs, a key ingredient for their products. Piper Sandler and Citi maintained a neutral stance on Hershey's stock, while DA Davidson lowered its price target due to concerns over rising cocoa costs. Amid these challenges, Hershey announced the passing of board member Robert M. Dutkowsky, a key figure in the company's financial and governance oversight.
In addition, Hershey was among several North American companies that initiated significant workforce reductions at the beginning of 2024. Hershey's financial health and position in the market continue to be watched closely as these recent developments unfold.
Analysts have adjusted their guidance numbers for Hershey, with a slight downward revision of the earnings per share forecast for 2024 from $9.60 to $9.59, and a notable reduction for 2025 from $9.95 to $8.90. These adjustments reflect the incremental pressure from rising cocoa costs.
The company's proactive management of cocoa sourcing and diversified product innovation pipeline are seen as key bullish factors. Despite the near-term cost risks, the firm recognizes the attractiveness of Hershey's product portfolio. The price target of $179.00 is based on approximately 20.0 times the company's projected 2025 earnings.
InvestingPro Insights
As investors weigh Citi's neutral stance on Hershey ahead of its Q2 earnings report, it's worth noting that Hershey has a history of financial resilience, as highlighted by InvestingPro Tips. The company has not only raised its dividend for 14 consecutive years but has also maintained these payments for an impressive 54 consecutive years, demonstrating a strong commitment to shareholder returns. Additionally, Hershey is trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 18.69, which dips even lower to 16.78 when adjusted for the last twelve months as of Q1 2024. This could indicate an attractive valuation for investors considering the stock's earnings potential.
InvestingPro Data also shows a solid financial performance, with a 6.42% revenue growth over the last twelve months as of Q1 2024, and a notable 8.87% quarterly revenue growth in Q1 2024. The company's gross profit margin stands strong at 46.31%, reflecting efficient operations and a robust business model. With such a consistent track record, Hershey's ability to navigate the anticipated challenges, such as the impact of higher-priced cocoa, may be better than expected.
For those interested in a deeper analysis, there are additional InvestingPro Tips available that can provide further insights into Hershey's financial health and market position. By using the coupon code PRONEWS24, investors can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable tips and make more informed investment decisions.
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