Hershey shareholders have endured a difficult stretch. The chocolate maker's stock has struggled as surging cocoa prices crushed margins and raised questions about consumer demand for premium confections. But Morgan Stanley thinks the worst is over.
The investment bank upgraded Hershey to overweight from neutral on Monday, raising its price target to $211 from $195. That implies 16% upside from current levels and signals renewed confidence in America's largest chocolate company.
The Cocoa Crisis Is Easing
Cocoa prices spiked dramatically over the past two years due to weather-related supply disruptions in West Africa, which produces roughly 70% of the world's cocoa. Those elevated costs flowed directly to Hershey's income statement, compressing margins that had been reliably stable for years.
Morgan Stanley's thesis centers on easing cost pressures. While cocoa prices remain elevated historically, they've stabilized and begun to decline from peak levels. As Hershey cycles through higher-cost inventory, margins should begin to recover.
Topline Momentum Returning
Beyond costs, Morgan Stanley sees improving revenue trends. Hershey has navigated consumer pushback on price increases better than feared, maintaining volume despite raising prices to offset input costs. As pricing anniversaries and cost pressures ease simultaneously, the company should see improving operating leverage.
The snacking category overall remains resilient. While consumers have traded down in some areas, confections have proven relatively resistant to economic pressure—people still want their chocolate, even if they're cutting back elsewhere.
Valuation Has Reset
Hershey's stock decline has created a more attractive entry point. The shares trade at a meaningful discount to historical averages and to packaged food peers. If Morgan Stanley's thesis plays out—easing costs plus stable demand—the multiple has room to expand as earnings recover.
Risks Remain
The upgrade isn't without caveats. Cocoa prices remain volatile and could spike again on weather events. Consumer spending faces ongoing pressure from inflation and high interest rates. Private-label competition continues to intensify across food categories.
Additionally, Hershey faces long-term questions about changing consumer preferences toward healthier snacking options. The company has diversified beyond chocolate into adjacent categories, but confections remain the core business.
The Dividend Angle
For income investors, Hershey offers an attractive and growing dividend. The company has increased its payout for decades and generates strong free cash flow even during challenging periods. At current prices, the yield provides meaningful total return support while investors wait for the turnaround thesis to play out.
The Bottom Line
Morgan Stanley's upgrade reflects a bet that Hershey's worst days are behind it. The combination of easing cocoa costs, resilient demand, and a reset valuation creates an attractive risk-reward setup for patient investors. If chocolate remains comfort food through whatever economic turbulence 2026 brings, Hershey could deliver sweet returns indeed.
