Convenience Snacks In Emerging Markets Will Thrive With Rising Incomes

Key Takeaways

• Innovation in product offerings, supply chain optimization, and entry into new snack categories drive revenue growth, operational efficiency, and improved margins.
  
• International expansion and premium product focus enable global diversification, strengthening brand equity and reducing risk from shifting consumer preferences.
  
• Reliance on traditional confectionery and North American markets, combined with rising costs and shifting health trends, limits Hershey's growth prospects and pressures profitability.

Catalysts

Engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally.

• Hershey’s targeted efforts to expand incremental shelf space for instant consumable products and its robust pipeline of innovation are expected to accelerate growth in high-velocity channels like convenience stores and “on the go” occasions, which supports future revenue expansion and volume gains as consumer snacking habits shift further away from traditional meals.
  
• The company’s strategic international investments, including double-digit organic growth in emerging markets like Brazil and successful brand activation in areas with rising disposable income, position Hershey to benefit from global demand for premium and impulse confectionery, fueling long-term top-line growth and geographical diversification.
  
• Ongoing supply chain optimization, recent capacity expansions—especially the new vertically integrated chocolate processing plant—and investments in automation equip Hershey with improved agility, cost competitiveness, and the ability to rapidly scale innovation, which together are expected to enhance operating leverage and support sustainable gains in gross margins and earnings.
  
• Hershey’s continued expansion into higher-growth snack categories beyond chocolate, such as better-for-you offerings and salty snacks (including the recent Lesser Evil acquisition), directly taps into broad snacking trends and preferences among younger and more diverse demographics, supporting revenue growth and reducing overall portfolio risk.
  
• Proactive reformulation and clear ingredient labeling, along with a track record of anticipating regulatory changes and prioritizing premium, healthier product development, position Hershey to capture premium pricing and increased shelf relevance, which, in turn, is likely to drive improved net margins and strengthen long-run brand equity.

Hershey Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hershey compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hershey's revenue will grow by 5.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.3% today to 17.7% in 3 years time.
• The bullish analysts expect earnings to reach $2.3 billion (and earnings per share of $9.86) by about July 2028, up from $1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, up from 22.3x today. This future PE is greater than the current PE for the US Food industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Hershey Future Earnings Per Share Growth

Risks

• Long-term increases in consumer health consciousness and regulatory pressures, such as potential sugar taxes and possible restrictions on SNAP purchases of candy, threaten to drive long-term volume declines and put persistent pressure on Hershey’s top-line revenue growth.
  
• Heavy reliance on mature North American markets, with only modest international gains noted and intense competition in international regions, limits Hershey’s opportunities for long-term expansion and could cap revenue growth over time.
  
• Elevated commodity costs, especially from persistent cocoa price inflation and the threat of up to $100 million in quarterly tariff impacts, are compressing gross margins and may erode net earnings should price increases prove unsustainable.
  
• Hershey’s portfolio remains heavily weighted toward traditional indulgent confectionery, creating significant long-term risk to revenue if consumer preferences continue shifting toward healthier snacks and if product innovation efforts are insufficient to offset lost demand.
  
• Ongoing supply chain volatility and climate-related disruptions affecting key raw materials like cocoa, coupled with increased compliance and sustainability costs, could create continued cost headwinds and margin pressure impacting overall profitability.

Valuation

• The assumed bullish price target for Hershey is $206.53, which represents two standard deviations above the consensus price target of $166.43. This valuation is based on what can be assumed as the expectations of Hershey's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $211.0, and the most bearish reporting a price target of just $123.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $12.8 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 6.4%.
• Given the current share price of $181.69, the bullish analyst price target of $206.53 is 12.0% 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.