Tariff Mitigation And New Reese's Product Will Create Opportunity

Hershey's fair value estimate was modestly increased to $191.95 from $189.18 as analysts cited strengthening category growth, improved earnings outlook, and revitalized innovation as supporting factors for higher price targets across the Street.

Analyst Commentary

Recent Street research on Hershey reflects a dynamic outlook, with both bullish and cautious perspectives shaping the current investment narrative.

Bullish Takeaways

Bullish analysts have upgraded their ratings and increased price targets, highlighting signs of strengthening category growth and revitalized innovation pipelines.
Price targets were revised upward in recognition of better-than-expected quarterly results and upwardly revised earnings outlooks for 2025 and 2026.
Robust pricing power was evidenced by a recently announced 16% price increase across Hershey’s confectionery portfolio, which supports revenue growth potential.
Some foresee improved longer-term performance as the company continues to execute on innovation and adapts to evolving market trends.

Bearish Takeaways

Bearish analysts have maintained more neutral stances, expressing concern that a more favorable 2026 outlook may already be priced into the stock.
The broader sector faces ongoing headwinds from weak consumption trends and slower center store category growth, which could pressure near-term results.
Some anticipate only modest organic sales growth and project an average earnings decline for the upcoming year, advising selectivity in food sector exposure.
There is caution regarding market share risks and uncertainties around regulatory factors, which could influence the pace of earnings recovery.

What's in the News

Hershey announced a double-digit price increase on its candy portfolio due to unprecedented cocoa costs, according to company executives (Bloomberg).
Stifel raised its price target for Hershey to $180 from $160. The firm maintained a Hold rating and cautioned about weak consumption trends and modest sales growth estimates for 2025 (Stifel).
The company will debut new product innovations such as the Reese's OREO Cup and expanded snacking offerings at the 2025 NACS Show Expo. These efforts aim to drive growth in the convenience channel.
Hershey is partnering with the New York Jets as part of new United Kingdom-based sponsorships. The collaborations will feature Reese's-themed fan events and product giveaways during NFL games in London.

Valuation Changes

The Fair Value Estimate has increased slightly to $191.95 from $189.18.
The Discount Rate remains unchanged at 6.78%.
The Revenue Growth forecast has edged down marginally to 3.24% from 3.24%.
The Net Profit Margin is up modestly to 14.77% from 14.74%.
The Future P/E Ratio has risen slightly to 25.85x from 25.52x.

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 4.3% annually over the next 3 years.
Analysts assume that profit margins will shrink from 15.3% today to 14.4% in 3 years time.
Analysts expect earnings to reach $1.8 billion (and earnings per share of $8.29) by about July 2028, up from $1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.3 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, up from 22.9x today. This future PE is greater than the current PE for the US Food industry at 19.6x.
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

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 $166.87 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 $211.0, and the most bearish reporting a price target of just $123.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.2 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 6.4%.
Given the current share price of $186.23, the analyst price target of $166.87 is 11.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
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.

How well do narratives help inform your perspective?

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