Hershey: Recent 52-Week Low, Cheaper Than Before Bid Rumours

Company Update (HSY US) (Buy): A value opportunity before cocoa prices normalize down, and maybe especially while 2025 EPS decline is unclear.

Highlights

• Shares near 52-week low and at 18.7x 2024E EPS. Dividend Yield is 3.2%.

• EPS will fall again in 2025 due to cocoa prices, but not yet clear by how much.

• Cocoa prices will normalize down, GLP-1s’ impact is likely modest.

• We see an overall 2024-27 EPS CAGR of 4.6% and a re-rating back to 23x.

• At $169.03, we see a 48% total return (14.7% IRR) by end of 2027. Buy.

Introduction

We review Hershey after shares have fallen below $170 to just above a recent 52-week low ($166.69), more than losing their gains on December 9 when rumours of a takeover approach from Mondelez were first reported:

Hershey Share Price (Last 1 Year)

Source: Google Finance (05-Jan-25).

We upgraded our rating on Hershey to Buy in April 2024, though the stock has never been part of our “Select 15” model portfolio and we do not own it in real life. Shares have lost 6.3% (after dividends) since we upgraded our rating.

We believe both Hershey’s margins and P/E multiple will eventually recover when cocoa prices normalize downwards, leading to a ~53% gain in ~3 years, though market reaction to 2025 outlook when it is released in February is uncertain.

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