Citi Upgrades Hershey Stock to Neutral: A Sweet Opportunity for Investors

Citigroup analyst Thomas Palmer recently upgraded The Hershey Company (HSY) stock from 'Sell' to 'Neutral,' signaling a more optimistic outlook on the confectionery giant. This upgrade comes on the heels of Hershey's strong fourth-quarter 2024 financial results, which demonstrated the company's resilience and growth potential. Here's a closer look at the factors driving this upgrade and the potential implications for investors.



Hershey reported a significant increase in net sales and earnings for the fourth quarter of 2024. Consolidated net sales grew by 8.7% to $2,887.5 million, while reported net income surged by 130.6% to $796.6 million, or $3.92 per share-diluted. Adjusted earnings per share-diluted rose by 33.2% to $2.69 (Source: Hershey's Q4 2024 Earnings Release). These strong results reflect Hershey's agile innovation, marketing, and in-store execution strategies, which have driven top-line growth and share momentum across its segments.

Citi's upgrade from 'Sell' to 'Neutral' highlights Hershey's strong fundamentals and growth prospects. The analyst likely recognized the company's ability to navigate external pressures, such as rising cocoa prices, and maintain its competitive position in the confectionery market. Hershey's strategic response to these challenges, including hedging, cost management, agile innovation, and diversification, has enabled the company to adapt to changing market conditions and continue to deliver value to shareholders.



Hershey's dividend track record and current yield present potential rewards and risks for income-oriented investors. The company has a history of increasing its dividend annually for 15 years, with a steady trend of higher dividends over a much longer period. The current dividend yield of 3.6% is near the highest levels in the company's history, suggesting that the stock is relatively undervalued compared to its historical average. This high yield provides a higher income stream for investors, while the dividend growth rate of roughly 10% a year on an annualized basis indicates a stable and growing cash flow.

However, Hershey's dependence on snack and sweet categories and the volatility of cocoa prices pose potential risks for investors. The company's focus on these categories may limit its ability to diversify revenue streams, making it more susceptible to changes in consumer preferences or economic conditions. Additionally, cocoa price volatility could negatively impact profit margins and dividend growth in the short term, although Hershey has historically been able to pass on higher costs to consumers and maintain its dividend growth.

In conclusion, Citi's upgrade of Hershey stock to 'Neutral' reflects the company's strong fundamentals and growth prospects. Income-oriented investors may find Hershey's dividend track record and high current yield attractive, but they should also be aware of the potential risks associated with cocoa price volatility and the company's dependence on snack and sweet categories. By carefully considering these factors, investors can make an informed decision about whether Hershey stock aligns with their investment objectives and risk tolerance.