In the last two decades, shares of Hershey Foods (HSY) have outpaced the broader markets, rising close to 657% after adjusting for dividends. In this same time period, the S&P 500 Index ($SPX) has returned less than 550%. 

But while the S&P 500 is still trading near all-time highs, Hershey stock is down 30% from record levels, valuing the company at $39 billion by market cap. Let’s see if the ongoing pullback provides investors an opportunity to buy the dip and benefit from outsized gains going forward. 

How Did Hershey Perform in Q4 of 2023?

Hershey is among the most recognizable brands globally, as it manufactures and sells confectionery products and pantry items in the U.S., as well as in other global markets. 

In Q4 of 2024, Hershey reported sales of $2.66 billion, an increase of 0.2% year over year. Comparatively, Wall Street forecast sales to grow by 2% year over year. While sales fell below estimates, Hershey reported earnings of $2.02 per share in Q4, which was higher than estimates of $1.95 per share. 

Hershey said its core revenue (organic sales) declined due to lower volume and an unfavorable product mix, as product prices increased by 6.5%. Further, its North America salty snacks business experienced a 26% decrease in volume, a large portion of which was associated with a planned inventory decline tied to the company’s enterprise resource planning (ERP) software last October. 

Despite its less-than-impressive numbers, Hershey's stock gained over 4% following its Q4 results. Investors remain bullish on Hershey due to its focus on cost optimization and its latest dividend hike, which amounted to 15%. 

Hershey increased its quarterly dividend to $1.37 per share, up from $1.245 per share. At current levels, that translates to a yield of 2.87%. In the last 20 years, its dividends have risen by more than 10% annually, increasing the effective yield over time. 

Soaring Cocoa Prices Are a Headwind in 2024

In 2024, Hershey expects revenue growth to range between 2% and 3%, while earnings are expected to remain flat. Comparatively, analysts were expecting Hershey to increase sales by 3.4% and profits by 12% year-over-year in 2024. 

According to Hershey, cocoa prices have gained pace in recent months due to unfavorable weather conditions in West Africa, a major producer of the commodity. In the last year, cocoa futures (CAK24) have roughly doubled, and are pushing higher again in today's trading after pulling back on Friday from record-high territory. Hershey emphasized it would use every tool available to navigate an uncertain business environment, which includes strong marketing plans and brand investments. 

Following the guidance, investment bank Morgan Stanley (MS) downgraded HSY stock to “underweight” from “equal-weight,” and reduced its price target to $183 from $191, citing Hershey's sluggish earnings growth. Morgan Stanley explained that cocoa prices account for 18% of the company's cost of goods sold, and rising input prices will weigh heavily on the bottom line over the next two years. Moreover, Morgan Stanley attributed the downgrade to rising competition and weaker demand in the salty snacks segment. 

What is the Target Price for Hershey Stock?

Analysts tracking Hershey's stock expect its earnings to grow by 8% annually between 2024 and 2028. Given the stock is priced at 20 times forward earnings, Hershey might seem expensive as it struggles to grow its bottom line.

But overall, analysts remain bullish. Out of the 22 analysts covering HSY, seven recommend “strong buy,” 14 recommend “hold,” and one recommends “strong sell,” for a consensus opinion of “moderate buy.” The average target price for the stock is $218, indicating an upside potential of 12.7%.