Piper Sandler has adjusted its outlook on Hershey shares, reducing the price target from $179.00 to $165.00 while keeping a Neutral rating on the stock.
The revision comes amid concerns over cocoa cost pressures and expectations for volume growth. The firm cites the 40-year low stocks-to-grind ratios as a bullish indicator for cocoa costs, prompting a more conservative stance.
The analyst at Piper Sandler expressed caution due to the recent volatility in cocoa costs, expecting them to remain high rather than moderate as previously thought. This is attributed to the loss of cocoa trees from disease and mining activities, alongside the current stocks to grind ratio. Additionally, the firm has reduced its volume growth projections for the fourth quarter of 2024, as well as the first and second quarters of 2025, questioning the aggressive expectations for improvement.
Despite the anticipation of pricing actions, the revised volume growth expectations might still be overly optimistic. Piper Sandler also maintained its expectation of a 5 percentage point inventory reload boost in the fourth quarter of 2024, which may not come to fruition. Consequently, the firm has decreased its earnings per share (EPS) estimates for Hershey, lowering the 2024 forecast from $9.35 to $9.29 and the 2025 estimate from $8.88 to $8.65.
In other recent news, Hershey is facing a series of downgrades and price target reductions from several financial firms. CFRA downgraded Hershey from Hold to Sell, slashing the 12-month price target from $214.00 to $169.00. Redburn-Atlantic initiated coverage on Hershey with a Sell rating, setting a price target of $165.00, while Citi maintained a Sell rating, adjusting the price target to $181.00. These revisions reflect concerns over potential declines in demand, cost pressures, and a weakening demand environment.
To navigate these challenges, Hershey has announced a 12% price increase on about half of its product portfolio and introduced alternative sweets such as gummies, licorice, and flavored crèmes. The company has also appointed Michael Del Pozzo as the new President of its U.S. Confection segment.
Bernstein SocGen Group maintained a Market Perform rating for Hershey amidst significant fluctuations in cocoa prices. As cocoa prices continue to fluctuate, Hershey's financial performance and strategic decisions will be closely monitored.
InvestingPro Insights
Recent InvestingPro data adds context to Piper Sandler's cautious stance on Hershey (NYSE: HSY). The company's P/E ratio of 20.28 and Price to Book ratio of 9.26 suggest a relatively high valuation, aligning with InvestingPro Tips indicating that HSY is "Trading at a high P/E ratio relative to near-term earnings growth" and "Trading at a high Price / Book multiple." This premium valuation could be challenging to maintain in the face of the cocoa cost pressures highlighted by Piper Sandler.
Despite these challenges, Hershey maintains a strong dividend profile. An InvestingPro Tip notes that the company "Has raised its dividend for 14 consecutive years" and currently offers a dividend yield of 2.99%. This consistent dividend growth may provide some support for the stock price, even as the company navigates the volatile cocoa market.
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.
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