On Monday, CFRA shifted its perspective on Hershey shares, upgrading the stock from Sell to Hold. The change comes amid speculation that Mondelez (NASDAQ:MDLZ) International is considering an acquisition of the renowned chocolate manufacturer, currently valued at approximately $40 billion.
This potential acquisition has stirred interest in the market, especially since Mondelez had a previous unsuccessful attempt to purchase Hershey in 2016. With a P/E ratio of 22.7, Hershey's current market valuation appears elevated according to InvestingPro analysis.
The upgrade reflects the analyst's view that there may be credibility to the Bloomberg report regarding Mondelez's renewed interest in Hershey. Although no official confirmation has been made, the possibility of a deal has been deemed significant enough to warrant a more neutral stance on Hershey's stock.
The target price has been raised to $200 from the previous $155, aligning with the broader analyst consensus, which shows price targets ranging from $153 to $222. Get deeper insights into Hershey's valuation metrics and 8 additional key ProTips with an InvestingPro subscription.
Hershey's unique ownership structure presents a notable obstacle to any takeover attempts. The Hershey Trust Company holds nearly all Class B shares, equating to roughly 79% of the total voting power. Any transaction leading to the Trust losing control would require notification to the Pennsylvania Attorney General's Office, adding a layer of complexity to acquisition efforts.
The industry context cannot be ignored, as recent movements such as the Mars-Kellanova deal underscore the growing interest in confectionery products among snacking companies. This trend may lend additional weight to the possibility of Mondelez pursuing Hershey once again.
The analyst concluded with an estimation that, should an acquisition be announced, the price per Hershey share could reach around $250. This speculative figure is based on the current market conditions and the precedent set by other deals in the sector. Notably, Hershey maintains strong fundamentals with a 'GOOD' financial health score and has maintained dividend payments for 54 consecutive years, offering a current yield of 3.14%.
In other recent news, Hershey has been actively navigating through several developments. The company is in discussions for a potential deal with Mondelez, as seen by Jefferies, but the final decision depends on the approval of the Hershey Trust, which holds about 80% of the voting power. However, the outcome remains uncertain due to structural risks.
Hershey has also been maintaining its financial performance despite challenges such as rising cocoa costs and market share losses. The company continues to uphold strong fundamentals, with a 44.5% gross profit margin and regular dividend payments for over half a century.
Analysts from TD (TSX:TD) Cowen, JPMorgan (NYSE:JPM), and Piper Sandler have maintained their hold and neutral stances on Hershey with price targets of $190, $171, and $168 respectively. They have also highlighted potential benefits of a speculated acquisition of Hershey by Mondelez, which could strengthen the latter's position in the snack market.
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