Can Hershey Overcome Rising Cocoa Costs With Its New Growth Strategy?
Hershey's next growth catalyst may not come from the candy aisle. With shares still 18% below their late-February high, one newly converted Wall Street bull thinks the market is sleeping on a stacked second-half calendar.
The Tentpole Thesis
Evercore ISI's David Palmer upgraded Hershey to Outperform this week with a Street-high $255 price target, implying roughly 30% upside.
His bullish call rests on a packed second-half calendar featuring the FIFA World Cup, America's 250th anniversary, Halloween, and a Hershey film release in late November.
"There are reasons to expect Hershey's chocolate consumption to ramp into the summer with merchandising, innovation and tentpole events," Palmer wrote in a note to clients.
Hershey's business isn't waiting for summer to prove itself. Net sales climbed 10.6% to $3.1B in the first quarter, with organic, constant-currency net sales rising 7.9%, driven primarily by pricing power rather than volume growth.
The premium and snack segments are pulling weight too. CEO Kirk Tanner noted that Ice Breakers sales rose over 8% in the quarter, with the company linking the jump to GLP-1 drug users.
"We've also seen strong demand for gum and mints, as the category benefits from functional snacking tailwinds, including GLP-1 adoption," Tanner said. Protein bar sales also rose 17% in the same period, adding another non-chocolate growth lane.
Cocoa Costs and Real Pressure
The margin story is where the picture gets complicated. Hershey's adjusted gross margin fell 80 basis points to 40.4% in the first quarter, as commodity and tariff-related costs outran the gains from price increases.
Palmer himself acknowledges the company has ceded chocolate market share over the past 12 weeks, with Dubai Chocolate, Lindt, and Ferrero all pressing harder in the premium segment at a moment when Easter ran shorter than usual.
Volume in North America Confectionery slid ~4% in the quarter, a direct consequence of the pricing-over-volume strategy the company has leaned on throughout the inflationary cycle.
That trade-off isn't resolved. If cocoa costs stay elevated and consumer elasticity stiffens, future price increases become harder to land without deeper volume sacrifice.
Priced Like Summer Doesn't Exist
The valuation case is the most compelling part of Palmer's pitch. At ~19x 2027 earnings estimates, Hershey sits just below a threshold that has historically been predictive.
"When Hershey falls under 20x it averages about 20% upside in the following year," Palmer wrote. That's not a guarantee, but it's a pattern worth taking seriously when the stock has already absorbed the bad news.
The selloff reflected real problems, including cocoa inflation, share friction in core chocolate, and a compressed seasonal window. But those headwinds don't disappear the World Cup or the America 250 celebration from the calendar.
Palmer also flags Sour Strips, Jolly Rancher, Lesser Evil, Dot's Pretzels, and SkinnyPop as growth vehicles outside chocolate, underscoring that Hershey's revenue base is meaningfully broader than most investors price in.
