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Hershey HSY shares are on a tear, up nearly 20% this month. Yet this wide-moat company still looks 15% undervalued to us. While we expect high cocoa costs to eat into gross margins in 2025, we like Hershey’s dominant position in its industry and think management’s smart brand investments and ability to extract costs bode well for the long term. Hershey appears on Morningstar’s Best Companies to Own list. It’s also one of chief US market strategist Dave Sekera’s 3 Stocks to Buy While the Market Hits New Highs.
Despite tough macroeconomic and competitive conditions, Hershey is focused on investing for the long term. The confectioner is building out its capacity, boosting its digital abilities, and enhancing its supply chain. Even in the face of unrelenting cost pressures, particularly for sugar and cocoa, we think Hershey can employ price increases, price/pack alterations, and efficiency improvements to support profitability. Cash-constrained consumers’ hankering for confections could be waning, given the more discretionary nature of the products. However, Hershey has maintained its leading position, holding a third of the US chocolate market versus just low-single-digit share for lower-priced private-label offerings.
Key Morningstar Metrics for Hershey
Economic Moat Rating
Hershey’s wide economic moat is based on solid intangible assets and cost advantage, underpinned by the company’s dominant market share position on its home turf, array of leading brands, and vast resources to invest to support its products and expand and enhance its capacity. We believe these factors have enabled Hershey to be a critical partner for retailers that are reluctant to risk out-of-stocks with unproven suppliers. We expect the company’s returns on invested capital to remain comfortably above its cost of capital over the next 20 years. Hershey’s dominant position in US confectionery is illustrated by its 36% share of the chocolate aisle, outpacing the 29% share held by closest rival Mars.
Read more about Hershey’s moat rating.
Fair Value Estimate for Hershey Stock
Our fair value estimate is $210 per share, implying a fiscal 2025 enterprise value/adjusted EBITDA of around 18 times. Our long-term forecast is for around 3%-4% average annual sales growth and operating margin holding around 22% on average through 2033, which generally squares with the average of the past five years. We expect Hershey will expend around 7% of sales—more than $900 million—annually to support its brands and its entrenched retail relationships. Hershey targets the removal of $300 million in pretax inefficiencies by 2026, on top of its prior aim to remove $150 million-$175 million in costs.
Read more about Hershey’s fair value estimate.
Risk and Uncertainty
Hershey’s financial performance could be strained if consumers opt for more healthful offerings. If governments increase regulations or impose taxes with the aim of curbing obesity, this may impair volume more than we forecast. Hershey is also exposed to human rights issues within its supply chain, especially with regard to cocoa farming, that could lead to reputational risk and heightened government oversight. Volatile input costs—particularly for cocoa, sugar, and dairy—may hurt Hershey’s profits from time to time. We see anti-obesity drugs’ effect on snacking and confectionery demand as muted.
Read more about Hershey’s risk and uncertainty.
Hershey Bulls Say
Hershey has rationalized its portfolio in the past few years to ensure that shelf space and advertising dollars are allocated to the highest-return opportunities.Low-priced competition is scant in US confectionery; private-label products hold just a low-single-digit share of the chocolate market.The more recently acquired salty lineup complements Hershey’s confectionery fare and unlocks the potential for innovation that blends the two taste profiles, which the company is uniquely positioned to achieve.
Hershey Bears Say
Consumers are feeling mounting pressure on their pocketbooks, particularly for more indulgent and discretionary categories like confectionery and snacking.Nearly a third of Hershey’s global employees operate under collective bargaining agreements. Given labor constraints, the company may suffer as a portion of these contracts are renegotiated.Confectionery companies have fallen victim to the pronounced and lingering rise in cocoa costs.
This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Feb. 26, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
