Hershey (NYSE:HSY) stock is down about 24% from its 52-week high amid concerns over external challenges like the ‘cocoa crisis’ and GLP-1 drugs (which curb users’ appetites, potentially hurting demand for Hershey products). However, this dip looks like a tempting opportunity to buy this longtime blue-chip consumer staples stock and long-term winner at a discount.
I’m bullish on shares of the iconic chocolate company based on the durable long-term demand for its products, its attractive product portfolio, which has quietly expanded well beyond sweets, and its long-term track record of strong returns. Plus, challenges like higher cocoa prices and concerns about GLP-1 drugs crimping demand already seem to be priced in at this point, and the company is increasing earnings and revenue despite these concerns.
Lastly, the stock also looks attractive based on its relatively modest valuation and its long-term dividend track record.
Rolling with the Punches
Hershey has dealt with its share of external challenges over the past year, whether it was the cocoa crisis (which caused the price of cocoa, a key input for Hershey’s chocolate products, to surge by 400% at one point this year) or the rapid rise of GLP-1 weight loss drugs.
But the good news is that with shares down 24% from their 52-week high, these issues appear to already be priced into the stock.
In fact, at this point, based on recent earnings results, Hershey appears to be masterfully rolling with the punches. While the company’s margins took a slight hit from higher cocoa prices during the first quarter, it more than made up for this with higher pricing, and consumers didn’t seem to mind.
Volume was also up, leading to revenue increasing by an impressive 10.4% year-over-year, illustrating the company’s pricing power and the durable demand for its products. Additionally, Hershey’s earnings also increased 3.7% year-over-year.
On the earnings call, CEO Michelle Buck explained that the company does not expect the volatility in cocoa prices to affect its 2024 financial outlook. She also said that while it could affect the 2025 outlook, the company remains “confident in the long-term outlook and the levers we have to help mitigate inflation and protect our margins over the long term.”
Similarly, while there has been plenty of doom and gloom about weight loss drugs crimping appetite for Hershey’s products, this isn’t materializing in its results at this point, as demand continues to look strong, so I am fairly sanguine about this risk.
More Than Just Candy Bars
Additionally, it’s important to remember that there’s more to Hershey than just chocolate treats like its namesake Hershey bars, Hershey Kisses, and other iconic brands like Reese’s Peanut Butter Cups.
The company has diversified its product portfolio and made a major push into the more salty and savory end of the snack market in recent years. For instance, Hershey acquired Amplify Snack Brands (the parent company of Skinny Pop Popcorn) in 2017, Pirate Brands (the maker of Pirate’s Booty) in 2018, and Dot’s Pretzels in 2021.
Not only do these moves keep Hershey on trend with the tastes of younger and health-conscious consumers, but they also give it a bit more of a buffer against cocoa prices, so this diversification looks like a win from both an offensive and defensive perspective.
Valuation and Dividend
Trading at 21.3 times consensus 2024 earnings estimates, I wouldn’t go as far as to call shares of Hershey cheap, but they are actually slightly cheaper than the broader market. The S&P 500 (SPX) currently trades at 23.4 times forward earnings), so shares certainly aren’t expensive either.
Additionally, Hershey is a dividend stock. While its forward yield of 2.7% isn’t necessarily massive, it’s still a nice bonus for holders and significantly higher than the S&P 500’s 1.5% yield. Plus, Hershey deserves credit for consistency. It has paid a dividend for 34 consecutive years and has grown its payout for 14 consecutive years.
HSY Stock Is a Long-Term Winner
While Hershey has been down over the past year, the stock has been a long-term winner. Inclusive of the current dip, Hershey is still up 166% over the past 10 years and 721.5% over the past 15. I like the idea of adding shares of long-term compound growers like Hershey when they are down.
Is Hershey Stock a Buy, According to Analysts?
Turning to Wall Street, HSY earns a Hold consensus rating based on one Buy, 14 Holds, and one Sell rating assigned in the past three months. The average HSY stock price target of $104.86 implies 5.9% downside potential.
A Sweet Opportunity
While the past year has brought plenty of challenges for Hershey, it has created a sweet opportunity for buyers.
I’m bullish on Hershey based on the way it has handled its challenges and increased its revenue and earnings year-over-year in spite of them. Hershey has been able to increase prices and increase volume, showcasing the strong demand for its products. The stock is a long-term winner that’s down 24% from its high, making it an attractive opportunity in my book. Lastly, it trades at a very reasonable valuation and sports a 2.7% dividend yield as an added bonus.
