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Not surprisingly, the share price for Hershey (NYSE:HSY) has been falling steadily since May and after a 35% reversal bottomed out at a 2-year low on Wednesday.
Plagued by higher prices for cocoa and loss of market share, Hershey (HSY) has endured a challenging 2023. It could face further investor discontent in the first few months of the new year if the company lowers its guidance for 2024 when it reports Q4 2023 results in early February, according to analysts at Goldman Sachs.
Headwinds from what Goldman sees as the “deflation of excess consumption during Covid” as well as the increased costs from weather-related price pressures on cocoa resulted in “meaningfully” slower volume growth in its key categories, and prompted investors to question if the company can grow earnings at all in 2024.
Faced with hurdles that will further compress gross margins, management will likely cut its optimistic EPS guidance for 2024 when it reports Q1 results. Goldman models just 0.8% EPS growth in FY24, versus the 7-8% target management provided in March.
But with a lower price target of $214 from $236 (~18% upside based on Thursday’s close) to account for the change in guidance, Goldman maintained its buy rating as it expects the fallout from lowered guidance to be short-lived.
“We believe the concerns have merit and [have] reset our earnings expectations accordingly, but we still believe the negativity is overdone,” the firm said in a research note Friday.
While time and investment should turn things around for Hershey (HSY) by next April or May, Goldman sees innovation as the main catalyst for a “positive inflection” for the company.
Goldman expects the Reese’s Caramel Cup will rekindle interest in the century-old Reese’s brand and breathe new life into the Pennsylvania-based candy-maker.
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