The Hershey Company: A Resilient Buy Amid Market Declines

The Hershey Company looks to be a strong investment amid market fluctuations. With a significant dip in stock price, its high dividend yield and strategic acquisitions position it favorably for long-term gains.

Date: 11-04-2025

AI Rating: 7

Market Context: The broader market has seen a 19% decline this year, prompting investors to reconsider their positions and identify potential opportunities. Within this context, Hershey's stock has dropped 42% from its all-time highs due to specific challenges like rising cocoa prices.

Strategy and Acquisitions: Hershey's approach of engaging in mergers and acquisitions has historically fueled its growth, generating a 12% annualized total return since 1972, outperforming the S&P 500's long-term average of 10%. Its average return on invested capital (ROIC) of 21% indicates efficient capital allocation, which enhances investor confidence.

Financial Health: The recent acquisition of LesserEvil aligns with Hershey's strategy to diversify its offerings in the healthier snacks segment. This segment has shown a promising growth rate, supporting the expectation for future revenue increases. Moreover, Hershey has maintained a robust free cash flow (FCF), further enhancing its attractiveness as a dividend stock.

Dividend Yield: Hershey has increased its dividend payouts for 15 consecutive years and currently offers a yield of 3.4%, which is significantly higher than its historical average. This stability, despite pressures from elevated cocoa prices, underlines the company's resilient operational model.

Valuation Considerations: Analyzing its current earnings and FCF yields, Hershey appears attractively valued relative to historical metrics. Its earnings yield suggests that the stock is at a decade-long high, allowing investors to benefit from a favorable entry point.

In summary, while the upcoming year may pose challenges owing to cocoa prices, Hershey’s strategic acquisitions, consistent dividend growth, and robust financial fundamentals position it as a compelling long-term investment opportunity, especially for those looking to capitalize on its current discounted valuation.

Stocks: HSY