On Tuesday, Citi downgraded shares of The Hershey Company (NYSE:HSY) from Neutral to Sell, adjusting the price target to $182 from the previous $195. The firm anticipates a 7% potential downside for the chocolate manufacturer's shares, citing concerns over the company's gross margin in the coming year.
The downgrade reflects expectations that Hershey's recently announced pricing strategy for 2025, which includes a mid-single-digit increase, may not sufficiently counterbalance the impact of cocoa price inflation, particularly in the first half of 2025. Hershey's current volume trends have not met expectations, partly due to ongoing distribution declines in measured retail channels.
Citi's analysis suggests that price elasticity might pose a significant challenge for Hershey in the next year, especially if competitors in the chocolate segment do not align with Hershey's pricing decisions. The firm notes that other snack categories, such as salty snacks, might be reducing prices, which could further complicate Hershey's position in the market.
While acknowledging that Hershey's earnings could see considerable improvement by 2026, Citi expresses concern that the foundation from which the company's growth is projected might be weaker than anticipated. This outlook on Hershey's financial performance and competitive challenges has led to the revised sell rating and lowered price target.
In other recent news, a wave of job cuts has swept across various sectors of U.S. and Canadian companies, impacting tech giants like Cisco Systems (NASDAQ:CSCO), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT). In the midst of this, financial services firms such as PayPal (NASDAQ:PYPL) Holdings, Citigroup, and BlackRock (NYSE:BLK), and consumer retail giants like Walmart (NYSE:WMT), Hershey's, and Nike (NYSE:NKE), are planning significant workforce reductions.
In the realm of financial analysis, Goldman Sachs (NYSE:GS) and RBC Capital Markets recently provided their takes on Hershey's stock. Goldman Sachs initiated coverage on Hershey with a Sell rating, citing potential downward estimate revisions due to ongoing losses in market share. RBC Capital, on the other hand, maintained its "Sector Perform" rating on Hershey, albeit reducing its price target from $209 to $205, reflecting concerns regarding volume and a mixed bottom-line outlook.
During Hershey's second quarter 2024 earnings call, the company outlined its pricing strategy amid cocoa price volatility. Hershey plans a 6-7% price increase and has secured cocoa prices for 2024. Despite minor adjustments to its full-year guidance, Hershey anticipates a stronger second half of the year, driven by innovation and merchandising improvements. However, concerns were raised about the company's pricing strategy not fully covering inflation and the volatility of cocoa prices.
InvestingPro Insights
Amidst Citi's downgrade of The Hershey Company (NYSE:HSY), current market data from InvestingPro provides additional context for investors. Hershey's market capitalization stands at a robust $39.73 billion, and the firm is trading at a P/E ratio of 21.67, which is considered high relative to near-term earnings growth. Notably, Hershey has a history of consistent dividend payments, having raised its dividend for 14 consecutive years, with a dividend yield of 2.79% as of the last recorded date. This could be a point of interest for dividend-seeking investors.
InvestingPro Tips highlight that Hershey operates with a moderate level of debt and has maintained dividend payments for 54 consecutive years, which may offer reassurance regarding the company's financial stability and commitment to shareholder returns. Furthermore, analysts predict that Hershey will remain profitable this year, with the company having been profitable over the last twelve months.
For investors seeking a deeper analysis, additional InvestingPro Tips are available, providing insights into the company's financial health and market performance. To explore these further, visit https://www.investing.com/pro/HSY.
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