Hershey (HSY) is poised for a multi-year earnings recovery with "clear and underappreciated" visibility into projected significant EPS growth in the consumer staples sector, Morgan Stanley said in a Monday note.

Morgan Stanley analysts said they expect the company's EPS to rebound sharply beginning in fiscal 2026, well ahead of consensus estimates with the potential for growth of over 20%. This will be followed by sustained double-digit expansion into fiscal 2027, they said.

Chocolate category trends have improved significantly and Hershey's salty snacks continue to outperform, the analysts said. Taken with the company's innovation initiatives boosting share performance, the factors point to Hershey delivering at least 2% organic sales growth in fiscal 2026, according to the note.

Hershey's outlook for costs has improved positively due to the easing of cocoa import tariffs and sharp drop in cocoa prices, the analysts said. Combined with mild commodity inflation and continued productivity initiatives, the company should see a clear path to margin recovery through fiscal 2026/2027, the analysts said.

In the long term, the potential downside from GLP-1 weight maintenance drugs appear manageable for the company, with data showing that consumers continue to indulge from time to time, the analysts said. Hershey has adjusted by offering Better For You products with health tweaks, according to the note.

Morgan Stanley upgraded the company's stock rating to overweight from equal-weight and raised the price target to $211 from $195.

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