HSY: Cocoa Cost Normalization Will Shape Future Earnings Resilience

Hershey's updated analyst price target edges lower by about $2, as analysts weigh slightly higher revenue growth and margin expectations against a modestly reduced future P/E, along with a series of recent target cuts and rating shifts across the Street.

Analyst Commentary

Recent Street research shows a mix of optimism and caution on Hershey, with several firms adjusting price targets higher or lower and a few making rating changes that affect how investors may think about valuation and execution risk.

Bullish analysts and bearish analysts are reacting to the same set of fundamentals, but they are drawing different conclusions about how much of that story is already reflected in the current P/E and how durable any improvement in earnings or margins might be.

Bullish Takeaways

Multiple bullish analysts have raised price targets, often by sizeable dollar amounts, signaling confidence that Hershey’s earnings power could support a higher valuation than previously assumed.
Some recent target hikes, including from firms like JPMorgan and Goldman Sachs, point to a more constructive view on Hershey’s long term earnings path, which they see as underappreciated in current multiples.
One major firm, Morgan Stanley, explicitly flagged the potential for earnings recovery linked to cocoa cost normalization over time. This suggests that current concerns around input costs may be weighing more heavily on the stock than on long term earnings potential.
Target increases from a broad set of institutions, rather than a single outlier, indicate that positive views are not isolated. This can help support investor confidence in Hershey’s execution and growth framework.

Bearish Takeaways

Several bearish analysts have trimmed price targets or shifted views more cautiously, indicating concerns that the current P/E may already capture a fair share of Hershey’s expected earnings and margin profile.
Recent cuts from firms that previously raised targets show that some on the Street are reassessing how much upside they see, especially if volume, pricing, or cost dynamics do not progress as previously modeled.
The removal of Hershey from a high conviction list at Goldman Sachs suggests that, while the firm still sees value, it no longer views the risk or reward trade off as strong enough to warrant a top ranking.
Clustered cuts from bearish analysts, including double digit dollar reductions in targets, underline worries that any disappointment on execution or slower improvement in costs could pressure both earnings expectations and the multiple investors are willing to pay.

What's in the News

Hershey plans to shift Reese's products back to a "classic" recipe, drawing attention to how the company manages brand heritage and consumer taste preferences (Bloomberg report).
Reese's is rolling out a limited time Marshmallow Cup and bringing back the Strawberry PB&J Cup, leaning into nostalgia and social media driven demand for new flavor mashups.
The company introduced Twizzlers Straws with vanilla, lime and coconut flavors, positioned both as an edible straw and a candy, with limited availability through online channels, delivery partners and Hershey's Chocolate World locations.
Hershey launched Dot's Original Snack Mix nationwide, expanding the pretzel based brand into a broader snack mix with multiple seasoned components aimed at snack occasions like parties and movie nights.
Hershey highlighted an Easter line up that includes new Jolly Rancher Gummies Fruity Mix, expanded Reese's Mini Eggs formats, Cadbury mini egg pouches, Harry Potter themed Hershey's Kisses and mixed assortments that add AirHeads alongside Twizzlers and Jolly Rancher products.

Valuation Changes

Fair Value: slips slightly from $229.65 to $227.78, a reduction of about $1.87 per share.
Discount Rate: holds effectively steady at 6.98%, indicating no material change in the assumed risk profile used in the model.
Revenue Growth: edges higher from 3.28% to 3.42%, reflecting a modestly stronger outlook for top line expansion in the model.
Net Profit Margin: moves up slightly from 16.48% to 16.61%, pointing to a small uplift in expected profitability assumptions.
Future P/E: shifts lower from 26.75x to 26.22x, implying a modest reduction in the valuation multiple used to value future earnings.

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Key Takeaways

Strategic diversification into new snack categories alongside innovations like Reese's could drive market share gains and incremental revenue growth.
Mitigating tariff impacts through productivity and pricing strategies may stabilize or improve net margins and earnings.
High cocoa prices and a challenging competitive landscape threaten Hershey's margins, revenue growth, and market position amidst a weaker consumer environment.

Catalysts

About Hershey

Engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally.What are the underlying business or industry changes driving this perspective?

The Hershey Company is actively focusing on mitigating the impact of tariffs, particularly those related to cocoa and Canadian imports, through productivity enhancements, pricing strategies, sourcing adjustments, and manufacturing changes. This could help stabilize or improve net margins and earnings if tariffs are reduced or successfully mitigated.
A stronger focus on price pack architecture and demand shaping, especially within less cocoa-intensive product lines, could optimize revenue growth and margin preservation, aiding in sophisticated revenue growth management.
Hershey’s innovation pipeline, particularly with the upcoming significant Reese's innovation, is poised to drive incremental market share gains and increased sales, promising revenue growth and potentially improving earnings given successful execution.
The company is investing in its chocolate processing capacity, aiming for more agility and better management of supply chains, which should provide long-term revenue growth through increased production and efficiency improvements, positively impacting net margins.
Hershey's expansion into sweets and better-for-you snacks categories alongside salty snacks with new acquisitions indicates strategic diversification beyond just chocolate, poised to capture additional market share and drive incremental revenue growth, potentially improving profitability in the long term.

Hershey Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Hershey's revenue will grow by 3.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 7.6% today to 16.6% in 3 years time.
Analysts expect earnings to reach $2.1 billion (and earnings per share of $10.5) by about April 2029, up from $883.3 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $2.5 billion.
In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 26.3x on those 2029 earnings, down from 44.2x today. This future PE is greater than the current PE for the US Food industry at 21.3x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Uncertainties around tariff exemptions could lead to additional costs of up to $100 million per quarter in Q3 and Q4 if mitigation efforts are not successful, potentially impacting earnings.
Expected declines in EPS, with guidance for the first half of 2025 projecting a 30% decrease, and potential for further declines in the second half, impacting overall earnings.
High cocoa prices continue to exert pressure on margins and may necessitate further cost management strategies, impacting gross margins.
The weaker consumer environment and value-seeking behaviors could affect revenue growth, especially in snacking and confections.
The competitive landscape remains challenging, particularly with new and smaller players gaining shelf space and market share, potentially affecting revenue and market position.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $227.78 for Hershey based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $267.0, and the most bearish reporting a price target of just $166.0.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $12.9 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 7.0%.
Given the current share price of $192.63, the analyst price target of $227.78 is 15.4% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Tariff Mitigation And New Reese's Product Will Create Opportunity