Post New

Hershey at about $181.50. The dividend yield is a hair over 3% if you like that sort of thing.
Down 34% from their high price just over a year ago which was about $277.

I think it has been discussed on the boards this year, but it's back near its recent lows.

I think the main narrative is that the price of cocoa is through the roof, with few prospects for an easy fix, so nobody wants to touch them.
It's also a low growth firm with almost no serious business or prospects outside the US, and such a high market share in the US that they can't steal share for growth.

But...they make money year in and year out, they aren't going anywhere, the balance sheet is strong, and the valuation is the cheapest since the tech bubble peak based on trailing P/E, which was 24 years ago.
(an old fashioned P/E of 18 isn't a terrible yardstick for them, as the earnings are mostly pretty smooth)

I've had a position since late last year, not that it's done me any good ending today, but I think I might just double down. I'm a big fan of boring.

Jim

I think the main narrative is that the price of cocoa is through the roof, with few prospects for an easy fix, so nobody wants to touch them.

Another big reason for the sell off is the rise of the new weight loss drugs. Apparently, they remove the desire to snack.

That being said, HSY has been through just about every challenge during its existence, I am sure they will figure this one out too.

It is approaching the Dec 20 low of 179, which is the area it keeps bouncing off of, so I think it is good for a trade at least.

majority of hershey's products are candies with minimal cocoa. they go out of their way to hide cocoa content on their products and website. it's a candy company marketing a chocolate front.
hershey can engage in mild price gouging under the cocoa cost fear and still take share.

tiny volume of hershey's dark/premium ALSO has ~50% less cocoa than other brands with similar descriptions.

majority of hershey's products are candies with minimal cocoa.

It's true that it's far from being the majority of their cost base, but it does matter.
They bumped prices last year (along with everybody for everything), and volumes were down 5% in the fourth quarter. It was probably price--it's not as if everybody suddenly became chocolate connoisseurs.

From WSJ---
"At Hershey, the goal is to raise prices enough over time to cover higher raw material costs. This year, though, it forecasts “relatively flat” earnings as higher cocoa and sugar costs bite.
...
evaluating potential changes to product sizes designed to attract more price-sensitive shoppers..."

The bigger problem is that there is no quick fix for scarce and expensive supplies. It's hugely labour intensive to grow, and the people who grow it don't make enough money even to maintain current production. Even though Hershey will do OK, cranking profits by cranking volume will be very hard to manage because of elasticity: at any given price point, there is a limit to demand.

Jim

We just got back from a short holiday on the Florida gulf coast (the “redneck riviera”). Noticed a lot of places selling Hershey branded ice cream. Possible growth for Hershey? Didn’t try any.

"Noticed a lot of places selling Hershey branded ice cream. Possible growth for Hershey? Didn’t try any."

Hershey's Ice Cream is not affiliated with Hershey’s Chocolate. While both companies were started by men with the same last name, there is no relation.

https://www.hersheyicecream.com/faq/

“Hershey's Ice Cream is not affiliated with Hershey’s Chocolate. While both companies were started by men with the same last name, there is no relation.”

Wow! That’s nuts.

Hershey Chocolate do make ice cream versions of some products, similar to Mars:

https://shop.hersheys.com/candy-type/ice-cream-sho...

am skeptical if cocoa prices are in hershey's top 10 expenses or worries. its uncorrelated to their volumes; they probably think marketing is the only fix.
many makers of high quality small batch cocoa (>60%) products are going bust given their small scale and fwd cost curves. this may also help hershey out a bit, since they dont need much.
from march-may, i was picking up great dark chocolate at ~80% discounts from multiple mainstream grocers.

as always, 3rd world farmers are the real tragedy. but not at the point where hershey would care to make a difference.

I honestly don't remember the last time I bought a candy bar. I do remember the local grocer would have once a month or so 10 bars for $5 ( 50 cents each ). I'm sure that was pre covid. I'm blown away when I go thru the checkout and see the prices for Hershey candy bars. Their sales volume has to be down at those price points. Same with small bags of potato chips, I think I saw them listed at $2.49/small-bag. I'll never pay that price, gouged for crappy snacks. Don't have interest in investing in them,either. Who knows, maybe this price gouging will lead to people developing better eating habits, lol ( or maybe not )

We're getting back near the recent lows again. Basically flat over 1 year, save the return from dividends.

The recent drop of about 9% in the last month seems to be in part fueled by bearish analyst downgrades, e.g.,:

https://archive.ph/ObUDH (Jeffries downgrade to Underperform based partly on growing price gap between chocolate and other snacks)

https://archive.ph/gFHcT (UBS neutral to buy based on continuing concerns re gross margins and cocoa prices)

Hershey also just announced a $500 million investment as part of an agreement with 9 cocoa co-ops in Cote D'Ivoire, some of which is targeted to stabilizing supply and helping farmers "professionalize cocoa farming and improve their profitability".

Fresh lows. Closed at $168.67, $168 after market. (versus peak over $275 last year)

Previously I thought of it as "a good solid modest-growth share", a good place to leave some money.
Now I think it may actually be cheap enough to offer a good return in the next few years.

For whatever it's worth, Value Line's 3-5 year price target range is $240-290. This is far from a reliable forecast, but for a sense of scale if it were to happen: the average of the six outcomes (2 price target extremes and 3/4/5 year outlooks) is 12.6%/year price return, plus dividends. Yield on current price is 3.19%.

Or, I could still be wrong : )
Cocoa trees have to be planted somewhere with sufficiently reliable weather, and somebody is going to have to be paid enough to grow the trees and pick the cocoa pods. If those problems can be solved acceptably well, I think Hershey shareholders should do nicely. Even if they aren't solved very well I think Hershey the business will do OK, but the share price may continue to languish.

Jim

Hershey (NYSE:HSY) was cut to underweight at Wells Fargo on earnings risk for the iconic chocolate maker. Shares of Hershey rose 2% despite the downgrade.

"The past week (cocoa diaries...HSY/MDLZ assessment) has crystallized a simple fact: HSY is on the precipice of historic EPS pressure in 2025 and (now) into 2026...and Street EPS needs to come down substantially," Wells Fargo analyst Chris Carey wrote in a note on Thursday.

https://seekingalpha.com/news/4385912-hershey-tick...

Maybe Hershey will not get the mid twenties PE as a consistent solid growth moaty company that it did in the past. Is it going the way of Nestle and Coke with virtually no growth and investors will have to settle for a much lower PE?

Maybe Hershey will not get the mid twenties PE as a consistent solid growth moaty company that it did in the past. Is it going the way of Nestle and Coke with virtually no growth and investors will have to settle for a much lower PE?

It's a possibility. But oddly it hasn't happened to Coke yet! No real growth for ages, but still trading at 26 times typical earnings. Go figure.

My happy vision is that at some point in the next (say) 6 quarters Hershey will start seeing earnings estimate upgrades instead of downgrades, and they'll go back into fashion. Meanwhile, the business isn't going away, and they're still the biggest confectioner in the US.

Jim

I've been looking and coke and thinking the same thing and Nestle too. With the lack of growth perhaps companies like thrse are seen as a safe haven due to their "consistency" of earnings despite lack of growth? And this justifies a 20plus ratio. There are very few companies that can demonstrate such consistent earnings over a decade.

Blackswanny, I assume you are British.

Have you looked at Associated british foods? It came to my attention as I was eating an ovomaltine Chocolate and wondered who owned the brand. On the surface the Stock seems to be trading fairly cheaply also vs its history, my only concern is they own primark where the majority of their growth comes from and not sure how something like that would be affected by the likes of temu and shien.

You have any thoughts?

Yep, not one I'm invested in, some thoughts; free cashflow is very erratic over the last decade and currently much higher than trend due to strong results from Primark. Cyclical?

Debt levels ok, average ROE, valuation seems attractive based on latest figures, however fairish value if you average out over 3 years of cashflow and earnings. Would likely trade on a higher valuation if it was in the US vs UK.

Excerpt below from Barron’s piece titled, “How Hershey Stock Could Gain 9%”:


“…The result is that its operating profit margin is expected to fall almost five percentage points from 2023 to 19% this year.

The overall sales picture hasn’t been pretty either. Last year’s sales declined modestly to $11.16 billion. Healthier snacks have moved into favor with consumers and have replaced some shelf space at retailers for the chocolate bars and gummy candies Hershey sells.

Shares have been almost halved from record highs of $275 hit in spring 2023. They’re down 13% in the past month to $155—and down 24% since Barron’s recommended them last March. They now trade at just under 20 times expected earnings for the coming 12 months, below the S&P 500
’s 21 times. Historically, Hershey tends to trade at a hefty premium given its pricing power and earnings stability, strengths that make the stock look cheap if it can return to growth soon.

Cocoa prices will eventually stabilize after having gained more than threefold since spring 2023. They’re already down from their peaks, and that type of gain in commodity prices doesn’t tend to last. Analysts forecast that the cost of goods will rise less than 2% in 2026. That, combined with moderate price increases in its products and continued cost discipline, would nudge Hershey’s operating margin back up to 20%. Combine that with a stabilization or slight growth in volumes, and earnings can jump.”

Wow, HSY stock price has fallen back to its price level in Summer 2019! Had steady price appreciation from 2009-2023, and down 45% since! Well, our family at least is still steadily consuming similar levels of sweets & chocolate.

My happy vision is that at some point in the next (say) 6 quarters Hershey will start seeing earnings estimate upgrades instead of downgrades, and they'll go back into fashion. Meanwhile, the business isn't going away, and they're still the biggest confectioner in the US.

No happy vision yet! Stock down to $143-ish today, down from $169 at year end when I wrote that. Dividend yield up to 3.8%.

Value Line, ever the optimists, has a price target of $240-290 for 3-5 years out. Middle of those ranges corresponds to 17%/year plus dividends from here. Hope springs eternal. I don't believe such forecasts, though a thought occurs: How much worse would reality have to be, for this to be a bad investment at this juncture?

I'm not losing sleep. Seems like a margin of safety, and I'm patient enough that the price doesn't really matter until I decide to sell. Just a spectator sport in the mean time.

Jim

Hi Jim,

Thanks for the thoughts here and elsewhere (everywhere). Don't you often say most companies will eventually trade for 12 or 15 times earnings? Why would Hershey be any different in your view? It probably can't be disrupted and if it ever dies it would probably be a longer process than many companies so maybe it should get a slight premium. What do you think the earnings growth will be over 3-5 years. Is that how you view it or are you thinking revert to past mean P/E with a cocoa cost decline kicker?

Don't you often say most companies will eventually trade for 12 or 15 times earnings? Why would Hershey be any different in your view?


Yes, Hershey has traditionally traded at a high multiple of earnings, around 30, and two years ago, shares were worth up to $250, which was over 30 times earnings. Jim's warning has come true, and Hershey now trades for about 17 times earnings, not because revenue or earnings are depressed (they are up substantially over the last few years) but because the multiple has finally come back down to earth.

It would be a good fit for Berkshire, solid earnings with very little risk of major changes (sorry RFK), and providing for an adequate return if it leveraged by float, but for you and me, it may be a stay wealthy stock, not a get wealthy one.

dtb

You might want to wait at least for tomorrow’s earnings release. Wall St is anticipating bad news.

Well Fargo cut price target from $140 to $125. They had previously cut the target twice in January from $160 to $150, then to $140.

With CEO having resigned, Hershey might want to get out all the bad news and set lower expectations for the new CEO.

Reported Q4 earnings is being well received in pre-market trading. However 2025 outlook is pretty grim. Reported EPS to decline in high 40% range and adjusted EPS in mid 30% range to $6 to $6.18. Adjusted EPS in 2023 and 2024 were $9.59 and $9.37.

If the pre- market price of $152 holds stock would be 25 times 2025 adj EPS and even higher GAAP EPS.

https://seekingalpha.com/pr/19993729-hershey-repor...

No happy vision yet! Stock down to $143-ish today...

$159 a week later. Anybody who saw nothin' but that one post would think I'm smart

Jim

$159 a week later. Anybody who saw nothin' but that one post would think I'm smart.

Looking even smarter...
$174 today, up $7.95 on a down day.
Looks like the @140 puts I sold are going to expire worthless, I'll have to try again!

Post New

Falling Knives FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.