On Thursday, Citi adjusted its financial outlook for The Hershey Company (NYSE:HSY), reducing the confectioner's price target from $213.00 to $199.00, while maintaining a Neutral rating on the stock. The adjustment comes ahead of Hershey's first-quarter earnings report, set for May 3rd, with the analyst at Citi suggesting that sales might not meet estimates due to subdued takeaway trends, which have been somewhat inflated by an earlier Easter.
Despite the anticipated sales shortfall, the analyst does not foresee a negative impact on Hershey's earnings per share (EPS) for the quarter. In fact, the analyst expects Hershey to surpass consensus EPS estimates, potentially marking the company's 17th consecutive beat on this metric. Looking ahead, the analyst sees a possibility for EPS growth in 2024, hinging on anticipated pricing actions in the second half of the year.
For the upcoming quarterly report, however, the analyst predicts that Hershey will likely reaffirm its guidance rather than adjust it. The reason for this expectation is that Hershey may delay announcing new price increases until they have made more progress in their Enterprise Resource Planning (ERP) system transition, which is currently in its fifth week during the earnings report.
The Citi analyst also provided insights into the longer-term financial forecast for Hershey, projecting flat year-over-year EPS for 2025. This projection is attributed to the impact of record cocoa inflation, which is expected to challenge the company's profitability. Detailed analysis of these factors has been included in the full report by the analyst.
InvestingPro Insights
In light of Citi's recent adjustments to The Hershey Company's financial outlook, it's worth considering additional data points and insights. According to InvestingPro, Hershey boasts a strong track record of raising its dividend, doing so for the past 14 years, and has maintained dividend payments for an impressive 54 years. This reflects the company's commitment to returning value to shareholders and its financial stability.
However, investors should be aware that Hershey is trading at a high P/E ratio of 21.14, which is above the industry average, indicating that the stock might be priced optimistically relative to near-term earnings growth. The high Price / Book multiple of 9.57 further underscores this point. Nevertheless, Hershey's cash flows have been robust enough to sufficiently cover interest payments, showcasing the company's financial health.
As for the stock's performance, Hershey's revenue has grown by 7.16% over the last twelve months as of Q4 2023, with a gross profit margin of 44.77%, reflecting efficient operations. Despite a subdued quarterly revenue growth of 0.18% in Q4 2023, the company's profitability remains intact, with analysts predicting it will be profitable this year, as it has been over the last twelve months.
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