Hershey (HSY) stock has recently gained due to easing cocoa prices, but underlying business fundamentals remain pressured, RBC Capital Markets said in a report Tuesday.

The confectionery giant faces slowing chocolate sales, retailer inventory cuts, and macroeconomic headwinds. While cocoa futures have dropped nearly 30% this year, potential tariffs and long-term supply risks may offset gains, RBC said.

"[Hershey's] results will vary widely from consumption data as the company laps [enterprise resource planning] related shipment tailwinds from the [year-ago] period," RBC said, adding that the company's pricing strategy has diverged from Mars to gain shelf space, but retail inventory cuts may limit distribution gains.

Although Hershey is unlikely to revise its financial guidance after just one quarter, its margin outlook could be lowered if tariffs affect cocoa costs. The potential impact remains uncertain due to the confidential nature of the company's contract arrangements, the report said.

"While earnings guidance for 2025 was better than buyside expectations, cocoa remains volatile and suppliers are broadly seeing retailer inventory destocking pressure to start the year," RBC said.

RBC has a sector perform rating on Hershey with a price target of $178.

Price: 163.69, Change: +0.63, Percent Change: +0.39