Key Moments
- Morgan Stanley upgraded Hershey to Overweight, noting an earnings recovery not yet reflected in consensus estimates.
- The firm projects roughly 20% total return, including dividends, as earnings rebound from a period of heavy cost inflation and downward estimate revisions.
- Analysts expect earnings to reaccelerate sharply from fiscal 2026, with potential for sustained double-digit growth through fiscal 2027.
Brokerage Upgrade on Strengthening Earnings Outlook
Investing.com — Morgan Stanley raised its rating on Hershey to Overweight. The analysts argued that the chocolate maker is entering a phase of earnings recovery that consensus forecasts have not fully recognized. Additionally, easing cocoa costs are improving the earnings outlook for the company.
Furthermore, Hershey offers rare clarity on accelerating earnings at a time when many consumer staples firms face soft volumes and weaker pricing power. Morgan Stanley expects roughly 20% total return, including dividends, as the company emerges from elevated cost inflation and repeated negative revisions.
Reversal in Earnings Revision Trend
Analysts noted that Hershey’s earnings revision cycle has shifted positively after one of the toughest periods in company history. They expect earnings to accelerate markedly from fiscal 2026 and exceed current consensus estimates. This trend could continue with double-digit growth through fiscal 2027.
Morgan Stanley emphasized that this constructive outlook relies on better visibility on demand and costs rather than aggressive assumptions. The firm sees a more predictable business path as input cost pressures ease and revenue drivers become clear.
Improving Category Trends and Diversified Growth Drivers
Category dynamics, particularly in chocolate, are becoming more favorable. Recent scanner data show healthier sales and resilient consumer demand despite higher prices. Additionally, Hershey’s focus on innovation is helping capture market share in core categories.
Beyond chocolate, the company’s salty snacks segment is growing and taking market share. This diversified growth supports the expected acceleration in earnings and strengthens the overall business profile.
Cocoa Price Relief and Margin Opportunities
Future performance visibility has improved as cocoa prices fell sharply this year and tariff-related pressures eased. Morgan Stanley noted that even modest cocoa price declines could significantly expand margins.
The report also highlighted Hershey’s sustained brand investment during high inflation. This approach may reduce the need for additional spending as cost pressures normalize, supporting margins during the anticipated earnings recovery.
| Key Drivers Cited by Morgan Stanley | Impact on Hershey |
|---|---|
| Easing cocoa costs and tariffs | Improved margin visibility; potential upside if prices decline further |
| Reaccelerating earnings from fiscal 2026 | Expected to exceed consensus with potential double-digit growth through fiscal 2027 |
| Stronger chocolate category momentum | Healthier sales trends and resilient demand |
| Salty snacks growth and share gains | More diversified revenue beyond chocolate |
| Sustained brand investment | Less catch-up spending; supports profitability as costs normalize |
Risks Easing and Long-Term Challenges Contained
Morgan Stanley noted that earlier concerns have diminished. Pricing remained firmer than expected, cocoa supply conditions improved, and seasonal demand weakness appears temporary.
Long-term risks, including shifts in consumer indulgence due to weight-loss trends, are manageable. Hershey is responding with portion-controlled offerings and new product formats to adapt its portfolio.
Valuation Framed by Temporarily Depressed Earnings
The report acknowledged Hershey appears expensive based on near-term valuations. However, Morgan Stanley argued that earnings remain temporarily suppressed after the inflationary period.
Over longer horizons, the brokerage sees valuation as balanced. Improving fundamentals, clearer earnings visibility, and potential upside surprises support Morgan Stanley’s Overweight rating on Hershey.
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