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Investing.com -- Piper Sandler downgraded both Hershey and Mondelez (NASDAQ:MDLZ) in separate notes Friday, citing prolonged cocoa cost pressures that are expected to weigh on earnings into 2026.
The firm lowered its price targets on both stocks, highlighting uncertainty around cocoa futures and the potential impact on margins.
For Mondelez, Piper Sandler downgraded the stock to Neutral, reducing its 2026 EPS estimate from $3.79 to $3.61, below the Street’s forecast of $3.64.
"Recently updated for cocoa pressure, but outlook has already worsened," the firm noted, pointing to persistently high cocoa futures prices.
The firm expects gross margins to decline by approximately 185 basis points in 2025 and another 45 basis points in 2026. It also warned that futures cost moderation in 2026 is "not a certainty," adding to earnings uncertainty.
Piper Sandler sees "incremental pressure on EPS, especially in 2026," making it difficult to justify previous valuation multiples. The price target was cut from $70 to $63.
Hershey faced a sharper downgrade, with the firm cutting its rating to Underweight and slashing its price target from $153 to $120.
Piper Sandler lowered its 2026 EPS estimate from $8.50 to $7.05, well below the Street’s expectation of $8.07, warning that "2026E Street EPS… is at significant risk if current cocoa prices continue to hold."
The firm also pointed to Hershey’s unusual request to purchase 90,000 metric tons of cocoa on ICE Futures US, saying it "scrambles for cocoa supply, a potentially worrying sign."
The move exceeds both exchange limits and federal position limits set by the CFTC, highlighting potential supply concerns.
The firm warned that margins could decline sharply, with Hershey’s gross margin expected to drop 430 basis points in 2025 and another 350 basis points in 2026.