On Monday, Citi maintained its Neutral rating on Hershey shares but increased the price target to $204 from $199. The adjustment follows Hershey's first-quarter earnings, which, according to the firm, presented a less dramatic picture than the 12% earnings per share (EPS) beat might initially indicate.
The report acknowledged the food group's eventful earnings week, highlighting Hershey's performance in comparison to other companies such as Kraft Heinz (NASDAQ:KHC) and Kellogg (NYSE:K). Citi noted that Hershey's results are unlikely to change the opinion of either supporters or detractors of the stock.
Those optimistic about Hershey may cite stabilizing volume trends and the possibility of confectionery price hikes, along with a recent decline in cocoa futures. On the other hand, critics could reference the anticipated high cocoa inflation next year and Hershey's own comments regarding potential negative pricing elasticity.
Citi's analysis suggests a middle-ground perspective, anticipating that Hershey's earnings for the year 2025 could be flat compared to current estimates for 2024, with the potential for significant earnings growth in 2026. The firm believes that this could eventually lead to an upside for Hershey stock, but suggests it might be premature to expect such an outcome.
Citi's commentary reflects a cautious optimism for Hershey's financial prospects, with an emphasis on the company's future earnings potential. The upgraded price target reflects the firm's belief that while immediate gains may not be imminent, Hershey's stock could see growth over time.
InvestingPro Insights
InvestingPro data provides a comprehensive view of Hershey's current financial health and future prospects. With a market capitalization of $40.03 billion and a P/E ratio standing at 19.61, Hershey's valuation appears robust. The company's P/E ratio adjusted for the last twelve months as of Q1 2024 is slightly lower at 17.48, which could indicate a more attractive valuation relative to near-term earnings growth, as reflected in a PEG ratio of 0.86. Additionally, Hershey's strong revenue growth of 6.42% over the last twelve months, coupled with an impressive operating income margin of 24.41%, suggests a solid financial performance.
Two InvestingPro Tips that are particularly relevant in light of Citi's analysis are Hershey's dividend consistency and analysts' revisions. Hershey has not only raised its dividend for 14 consecutive years but has also maintained dividend payments for 54 consecutive years, underscoring its commitment to returning value to shareholders. This could be a reassuring factor for investors seeking stable income. On the other hand, the fact that 9 analysts have revised their earnings downwards for the upcoming period may signal caution, aligning with Citi's neutral stance on the stock.
For those interested in a deeper dive into Hershey's financials and future outlook, there are additional InvestingPro Tips available at https://www.investing.com/pro/HSY. With the use of the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a wealth of information that could inform their investment decisions.
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