Morgan Stanley on Hershey (HSY) Following Earnings: 'We expect a modest negative stock reaction'
Morgan Stanley analyst Pamela Kaufman reiterated an Equalweight rating and $191.00 price target on Hershey (NYSE: HSY)
The analyst comments "We expect a modest negative stock reaction as HSY reported a lower quality Q4 EPS beat ($2.02 vs. consensus $1.95), as a topline miss was offset by stronger GM's and a lower tax rate, but the focus is on 2024 guidance as the company expects organic revenue to increase 2-3% and EPS to remain stable at ~$9.59, well-below its 6-8% EPS growth algorithm. 2024 EPS guidance is 2% below what we viewed as overly optimistic consensus estimates of $9.82 or +3% YoY (MSe $9.54, +0.5% YoY), but is ahead of buyside expectations that we believe ranged from $8.90-$9.40. We note that guidance reflects a lower tax rate of 13%, which adds ~3% to EPS growth, cost savings initiatives estimated to drive ~$100 mm in savings, and HSY plans to double buybacks. As highlighted in our recent HSY deep dive and cocoa expert call recap, HSY’s 2024 outlook reflects headwinds from historically high cocoa prices as well as sugar. Encouragingly, HSY noted that it has good visibility into 2024 cocoa and other ingredient costs. While guidance appears better than anticipated, we believe HSY continues to face multiple areas of uncertainty, including the potential for further cocoa price increases (which may also impact 2025), increasing competition, and a softening consumer demand environment that create downside risks to the achievability of 2024 guidance and the 2025 outlook."
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Shares of Hershey closed at $194.26 yesterday.