On Wednesday, Citi analyst Thomas Palmer reiterated a Sell rating on Hershey stock with a price target of $159.00. With shares trading near $155, down over 16% in the past six months according to InvestingPro data, Palmer highlighted cocoa inflation as the primary concern for the confectioner's earnings in 2025, noting that the recent increase in cocoa futures could pose additional challenges in the second half of 2025 and into 2026.
Hershey is set to report its fourth-quarter earnings for 2024 on February 6th, and expectations are for a quarter in line with previous forecasts. The company had confirmed its fourth-quarter outlook last week, coinciding with the announcement of CEO Michele Buck's retirement.
Despite maintaining dividend payments for 54 consecutive years and offering a 3.53% yield, Palmer suggests that the company's outlook for 2025 might fall short of consensus estimates, which could significantly influence investor reaction to the earnings release.
The decision by Hershey to hedge over 40% of its annual cocoa needs at a time when futures are near record highs was also pointed out as a potential indicator that the company does not view cocoa inflation as a temporary issue. This move, coupled with the leadership transition, adds to the emerging concerns surrounding the company's future performance.
Palmer's analysis indicates that the combination of these factors, especially the cocoa price inflation and its impact on Hershey's margins, could weigh on the stock. Hershey's strategy to manage these costs will likely be a focal point for investors following the earnings announcement.
The report from Citi comes at a time when investors are closely monitoring the effects of commodity prices on the consumer goods sector, with Hershey's upcoming earnings serving as a potential bellwether for the industry's ability to navigate these challenges.
In other recent news, Michele Buck, CEO of The Hershey Company (NYSE:HSY), is set to retire in June 2026. The company has initiated a search for its next CEO and aims to complete the transition by July 2026.
Amidst this leadership transition, Hershey is facing challenges due to global cocoa shortages and escalating prices. The company has sought regulatory approval to purchase over 90,000 metric tons of cocoa, a significant increase from current limits.
Analysts from JPMorgan and Citi have maintained neutral and sell ratings on Hershey shares, respectively, expressing concerns about the impact of high cocoa prices on Hershey's earnings. BofA has reinstated Hershey with a neutral rating. In addition, Hershey Trust Co. declined a preliminary takeover bid from Mondelez International Inc (NASDAQ:MDLZ)., and Michael Del Pozzo, President of Hershey's U.S. Confection division, is set to leave the company.
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