Hershey's (HSY) Q2 beat and better-than-feared fiscal 2025 guidance cut, as well as margin recovery actions, offer visibility into "accelerating fundamentals," Morgan Stanley said in a Thursday research report.

The company's pricing and cost savings initiatives are expected to restore over 500 basis points of gross margin in fiscal 2026 but will be partially offset by cocoa inflation, tariffs, and volume pressure, which is driving the management to expect at least on-algo EPS growth of 6% to 8%, according to the note.

Morgan Stanley raised its fiscal 2025 and 2026 EPS guidance by 7% and 11%, respectively, citing the company's scope for organic sales growth upside in H2, analysts wrote.

"At this point, we see the glass as half full with stronger pricing power evident in recent scanner data, suggesting the implied H2 and FY26 topline outlooks could prove conservative while tariff relief still seems more likely than not and cocoa fundamentals are encouraging," according to the report.

Morgan Stanley has an equal-weight rating on the stock and raised its price target to $189 per share from $173.

Price: 187.53, Change: -1.30, Percent Change: -0.69