Despite facing challenges with sharply higher cocoa prices, The Hershey Co. remains in a strong position due to its leadership in the confectionery category and effective management, according to analyst Robert Moskow of TD Cowen.
In an April 2 company update, Moskow discussed the impact of rising cocoa prices on Hershey’s stock, which he expects to remain rangebound in the near term. TD Cowen maintains a hold rating for Hershey with a target price of $205 per share, reflecting confidence in the company’s long-term prospects.
The recent surge in cocoa prices, with July futures topping $9,300 per tonne, presents a challenge for Hershey and other confectionery companies. Moskow noted that higher cocoa prices typically take about a year to reach consumers, affecting the cost of goods sold for companies like Hershey.
Despite the challenges posed by cocoa price volatility, Hershey has taken steps to mitigate the impact on its bottom line. The company has implemented cost-saving measures and productivity improvements to offset rising input costs.
Looking ahead, TD Cowen projects Hershey’s operating margin to narrow slightly in the coming years, but expects operating profits to remain stable. The firm’s analysis takes into account various scenarios, including the potential impact of price increases on consumer demand.
Overall, Hershey’s ability to navigate the challenges of the cocoa market and maintain its competitive position in the confectionery category will be key to its future success. Investors will be closely watching how the company manages its costs and pricing strategy in the face of volatile commodity prices.