Subject: Re: OT: Hershey
Briefing.com:

Hershey Foods as a 2024 Investment Idea; dominant market positioning can help fuel a recovery (HSY):

Hershey Foods (HSY) is beginning to sweeten after a lengthy sell‐off that ensued shortly after shares broke to all‐time highs in May 2023. Consumer staples stocks fell out of favor rapidly during the back half of the year as capital flooded riskier assets, reflecting enthusiasm over AI and a possible pause on interest rates from the Fed. At the same time, weight loss drugs (GLP‐1s) started to gain popularity, fueling concerns of a sharp contraction in food consumption.

However, with shares sliding over 30%, these headwinds are likely priced in. Meanwhile, HSY boasts several competitive advantages, making it a solid turnaround play for 2024. Recent 2024 Investment Ideas include Tyson Foods (TSN), Walt Disney (DIS), and MongoDB (MDB).
HSY boasts an exceptional market share. Why we like HSY over many other consumer staple names is its command over close to half of the U.S. chocolate market. Candy brands such as Reese's, Milk Duds, and more may have private label competition, but with cocoa prices continuing to climb, off‐brands struggle to compete on price. Instead, many of HSY's competitors market themselves more as premium options. While substitutes may always find shelf space, HSY's sturdy positioning will likely remain mostly unthreatened.
Diversification should help in 2024. HSY has added many brands to its salty snacks portfolio, including Skinny Pop and Dot's Homestyle Pretzels, complementing its sweeter lineup. Combinations such as Reese's Popcorn and Hershey‐dipped Pretzels underscore the smart decision to add salty snacks that pair well with sweeter options.

Margins were a weak point in 2023, but with pricing and efficiency initiatives flowing through to 2024, HSY can offset persistent headwinds. For example, all‐time high cocoa prices are not cooling down, largely due to weather, which is taking a bite out of margins. At the same time, HSY is undergoing business modernization efforts, which will create inventory issues during the first part of the year. However, management is confident that given its market leadership, it can lean on pricing and other productivity enhancements to cushion against potential margin headwinds this year.
Alongside stubbornly high commodity prices, a strained end consumer will be a meaningful obstacle facing HSY in 2024. Candy tends to be more discretionary than other snack foods. While disinflation is giving consumers some breathing room, if HSY is forced to implement additional pricing actions this year, volumes could take a beating. Management was optimistic about current consumption trends, noting strong consumer engagement and growth potential, but was cautious talking about 2024 until it released its Q4 results in February.
Still, after a sell‐off that seemingly would not let up during the back half of 2023, we view many current fears as overblown. HSY's share of the U.S. chocolate industry is dominant, and its recent M&A actions were intelligent, targeting brands that complement its core portfolio. With a solid 2.5% dividend yield, ongoing share buybacks, and a relatively attractive forward earnings multiple of 19x, HSY is a sweet choice for 2024. As always, a 20‐25% stop loss is recommended.