On Wednesday, Citi analyst Thomas Palmer revised the price target for Hershey shares, traded on the New York Stock Exchange (NYSE:HSY), to $159 from the previous target of $165. Despite the adjustment, the Sell rating for the chocolate manufacturer was maintained.
The revision reflects concerns about the impact of rising cocoa costs on the company's earnings, particularly in the second half of 2025. Currently trading near its 52-week low of $165.38, InvestingPro analysis suggests the stock is slightly undervalued, with a GOOD overall financial health score.
Palmer's report indicated that the cocoa futures curve has seen a significant increase in the past few months. This rise in cocoa prices is expected to affect Hershey's earnings more in the latter half of 2025 than in the first half.
The analyst pointed out that cocoa hedges, which can extend nine months or more, might not fully mitigate the financial strain caused by the elevated cocoa prices. Despite these challenges, InvestingPro data shows Hershey maintains strong profitability with a 44.46% gross margin and has successfully maintained dividend payments for 54 consecutive years.
Hershey has already publicized its pricing strategy for 2025, announcing a net increase of 3-4%. Palmer suggested that if cocoa prices continue to remain at their current high levels, Hershey might need to consider further pricing actions to offset the cost pressures. The company's cash flows currently cover interest payments sufficiently, with a moderate debt level and an Altman Z-Score of 5.71 indicating strong financial stability.
In contrast, Mondelez International (NASDAQ:MDLZ), which holds a Buy rating from Citi, is still in the process of finalizing its pricing strategy. The analyst noted that Mondelez might implement more significant price increases for its chocolate products compared to Hershey, owing to stronger underlying demand trends.
The report also touched upon the broader outlook for the packaged food industry, with additional details provided in Citi's 2025 Outlook released on the same day. The outlook encompasses the overall expectations for the industry as well as predictions for individual companies within the sector.
In other recent news, Hershey's potential acquisition by Mondelez International has been a topic of discussion among several analysts.
RBC Capital Markets maintained its Sector Perform rating on Hershey shares, pointing to the complexities of such a merger due to the Hershey Trust's significant influence. Bernstein SocGen Group echoed this sentiment, maintaining a Market Perform rating for Hershey and citing Hershey's licensing agreement with Rowntree as a potential barrier to the acquisition.
On a different note, Hershey Trust Co. has declined a preliminary takeover bid from Mondelez International Inc (NASDAQ:MDLZ)., potentially putting an end to an acquisition that could have resulted in combined sales nearing $50 billion. In response to this development, Mondelez announced a stock buyback plan of up to $9 billion.
Adding to the recent developments, the Hershey Company (NYSE:HSY) announced that Michael Del Pozzo, President of its U.S. Confection division, will be leaving the company, with CEO Michele Buck stepping in on an interim basis. Meanwhile, BofA reinstated Hershey with a neutral rating, setting a $180 price target for the company's stock, based on a multiple of 21.5 times the firm's estimated earnings per share for the calendar year 2026.
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