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On Thursday, Deutsche Bank (ETR:DBKGn) analyst Steve Powers adjusted the price target for Hershey stock (NYSE:HSY) to $148 from the previous $184, while maintaining a Hold rating on the shares. The stock, currently trading near its 52-week low of $150.31, has experienced a significant decline of approximately 19% over the past six months, according to InvestingPro data. Powers cited persistent high cocoa prices, which are currently around $11,500 per metric ton, as a significant factor that could pressure Hershey's gross margins and volume in the fiscal years 2025 and 2026, barring any relief. The company's current gross margin stands at 44.46%, and maintaining this level could be challenging. The analyst also noted the potential for uneven top-line growth due to the shift of Easter into the second quarter of 2025 and challenging comparisons with last year's shipments influenced by an ERP implementation. Despite these challenges, InvestingPro analysis shows Hershey has maintained dividend payments for an impressive 54 consecutive years.
The recent announcement of Hershey CEO Michele Buck's planned retirement by June 2026, coupled with changes in division leadership, adds complexity to the company's outlook. Additionally, concerns over GLP-1 and reformulation issues are seen as complicating factors for Hershey's near- to medium-term narrative. In light of these challenges, Deutsche Bank has lowered its fourth quarter estimates for Hershey, positioning them slightly below the company's implied guidance for fiscal year 2024 revenue and towards the lower end of EPS expectations.
For fiscal year 2025, despite buy-side estimates ranging from $6 to $7 for EPS, Deutsche Bank forecasts $7.13, down from a previous estimate of $7.90. The analyst acknowledged limited visibility, potential headwinds from rebuilt incentive compensation, and fewer opportunities for productivity due to significant cuts in selling, marketing, and administrative expenses over recent years. The revised price target of $148 reflects the removal of any implied takeover premium and the lowered earnings estimates. According to InvestingPro's Fair Value analysis, Hershey appears undervalued at current levels, with investors anticipating the next earnings report on February 6, 2025. For a comprehensive analysis of Hershey's valuation and 8 additional exclusive ProTips, consider accessing the detailed Pro Research Report.
In other recent news, Barry Callebaut, the Swiss chocolate maker, reported a decrease in sales volume for the first quarter of its 2025 fiscal year, leading to a negative watch for U.S. and European chocolate companies. The company also revised its volume guidance for fiscal 2025, predicting a slight decrease in volume. According to Barclays (LON:BARC) analysts, this performance seems to mirror the rise in cocoa prices.
Meanwhile, Hershey is facing increased cocoa cost risks, leading Piper Sandler analysts to adjust their outlook on the company's shares. They reduced their price target on Hershey and lowered their earnings per share estimate for 2025 and 2026. Citi analyst Thomas Palmer also maintains a Sell rating on Hershey due to concerns about rising cocoa inflation potentially impacting the company's performance in 2025 and 2026.
Hershey's CEO Michele Buck is set to retire in June 2026, and the company has begun the search for a new CEO, aiming to complete the transition by July 2026. Amidst this leadership change, Hershey is grappling with global cocoa shortages and escalating prices, prompting the company to seek regulatory approval to purchase over 90,000 metric tons of cocoa, a significant increase from current limits. These are recent developments in the chocolate industry.
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