Summary
- Hershey’s strong brand equity and pricing power make it a compelling value investment, especially for dividend-focused investors seeking stability in bear markets.
- Despite attractive valuation metrics, Hershey faces challenges like stagnant earnings growth, shifting consumer preferences, and soaring cocoa prices.
- To mitigate risks, consider a diversified approach, including potential hedging with GLP-1 drugmakers like Novo Nordisk and Eli Lilly.
- Assigning Hershey a BUY rating for long-term, high-risk-tolerant investors focused on stable dividends and potential outperformance in bear markets.
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oday, I’ll be analyzing The Hershey Company stock (NYSE:HSY). Current broad market valuations of the S&P 500 are quite high, though not necessarily unjustified. If you’re a value investor seeking a contrarian and undervalued investment, especially one focused on dividends, Hershey has likely caught your attention. I hold a substantial position in HSY, acquired over the past few months, believing it offers considerable value. Today, I’ll explore why it might—or might not—be a suitable addition to your portfolio.
Company Overview
Let’s begin with an overview of the company. Hershey is the leading confectionery company in the United States, generating $11.2 billion in sales in 2023. Hershey’s dominant market position is built on brands like Hershey’s Bars, Reese’s Peanut Butter Cups, Almond Joys, Mounds, Cadbury (US rights), Heath, Hershey’s Kisses, Icebreakers, Jolly Ranchers, KitKats, and its expanding salty snack portfolio (Pirate’s Booty, Skinny Pop). This brand strength justifies Morningstar’s wide economic moat rating for the company.
With a market cap of under $40 Billion, the size of the company for its market share demonstrates that:
- The confectionary market is not that large relative to the packaged food products market at large.
- There is significant upside over time if the company were to continue to expand into new salty snack segments and other food products. The reputation of American chocolate tasting different from Europeans handicaps the international potential of the confectionary brands, but there is significant international expansion across new market segments the company might choose to enter via M&A.
- The market cap of diversified food and beverage player PepsiCo (PEP) hovering around $300B demonstrates the relative small size of Hershey.
