On Monday, TD Cowen reiterated its Hold rating on Hershey shares (NYSE:HSY), maintaining a price target of $190.00. According to InvestingPro data, analyst targets for Hershey range from $153 to $222, with the stock currently trading at a P/E ratio of 22.6x. The firm highlighted concerns about Hershey's long-term challenges, including the expansion of GLP-1 drugs and increased scrutiny on unhealthy foods in the United States.
Hershey is also contending with rising cocoa costs, corporate layoffs, and market share losses. Despite these challenges, InvestingPro data shows the company maintains strong fundamentals with a 44.5% gross profit margin and has maintained dividend payments for 54 consecutive years.
These issues are compounded by the fact that The Hershey Trust, which controls a significant portion of the company, faces a lack of diversity in its holdings, posing a risk to its obligation to financially support The Hershey School.
The analyst noted that Mondelez (NASDAQ:MDLZ)'s potential acquisition of Hershey could offer several benefits for Mondelez, including the addition of two world-class brands to its snack portfolio and significant cost synergies that could help both companies manage rising cocoa prices. The move would also strengthen Mondelez's position against Mars, which recently acquired Kellanova, marking a shift in Mars' expected expansion strategy.
The report also detailed the financial implications of such an acquisition for Mondelez, estimating a 38% equity premium for Hershey shares, which would amount to a $242 share price. This is based on an 18x EV/EBITDA multiple, with anticipated cost synergies representing 7% of sales.
The financing is projected to be split evenly between debt and equity. The analysis suggests a slight dilution in the first year, with the deal becoming accretive by the third year, and Mondelez's financial leverage increasing to 4.0x in the first year.
In conclusion, TD Cowen has adjusted its price target for Hershey to $190.00 to reflect a higher probability of a bifurcated outcome, while maintaining a Buy rating on Mondelez due to its strong long-term positioning, irrespective of the potential acquisition of Hershey. For deeper insights into Hershey's valuation metrics and comprehensive analysis, including 8 additional ProTips and detailed financial health scores, check out the full research report available on InvestingPro.
In other recent news, Hershey has maintained a steady financial performance despite facing significant inflation impacts due to rising cocoa and sugar costs. The company projects a top-line growth of 2% to 4% for 2025 and is adapting its portfolio in response to consumer behavior changes influenced by GLP-1 drugs. Analysts at JPMorgan and Piper Sandler have maintained a Neutral stance on Hershey, with price targets of $171 and $168 respectively.
In an effort to diversify its product portfolio, Hershey recently acquired Sour Strips, a sour candy brand known for its bold flavors and strong social media following. The company is also expecting cost savings of around $180 million for 2025 from productivity and AAA programs.
Despite the challenging commodity market, Hershey continues to navigate with strong fundamentals, as highlighted by its EBITDA of $2.95 billion. The company's unique ownership structure, with the Hershey Trust Company holding approximately 80% of the voting power, has been a significant factor in past acquisition attempts.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.