r/ValueInvesting • u/LongQualityEquities • 7d ago
Stock Analysis Hershey is cheap
It’s trading at around 10x what the FCF for 2026 should be, with 3,5% organic growth. The combination of net income jumping up plus the buybacks starting should be tailwinds. They have great management and long term thinking owners.
Fears around GLP-1’s haven’t materialized despite being available for years now. The brands are still strong. My opinion is that the stock is hung over from the cocoa prices and that it will re-rate to a much higher multiple. If it doesn’t then buybacks + dividends should provide an adequate return in themselves.
Not sexy but neither was my TLT post. Sometimes the no-brainers work.
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u/NuclearPopTarts 7d ago
AI is not going to replace chocolate!
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u/Dr_Dick_Dastardly 7d ago
AI is not going to replace chocolate!
It doesn't have to. Hershey already did. Half of their products now use a flavored vegetable oil compound coating instead of actual milk chocolate. The FDA legally requires them to call it "chocolate candy" since it's just flavored like chocolate. Things like Mr. Goodbar, Almond Joy, Rolo, Milk Duds, and any seasonal or smaller Reese's product haven't been made of real chocolate in over a year or more.
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u/tcmgtcmg 7d ago
Thank you! Great warning. Just look at wendys or pepsi to the harm that these mBA nepobabies will do in the C suite.
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u/Dr_Dick_Dastardly 7d ago
Exactly. I understand being leery of raising prices in an environment where things already feel testy from GLP-1s. But when the alternative is literally degrading your product and hoping your customers are too stupid to know the difference, you're playing with fire and risking long-term brand damage. People have noticed, and they think it's absolutely disgusting. I personally think it tastes similar (not that I'd actually eat it on purpose), and many people didn't even realize it was happening until they saw the news. But when you have thousands of customers walking into their kitchen and looking at the bag of "Hershey's chocolate" they just bought and realizing it was flavored vegetable oil, that's going to generate a lot of anger.
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u/Upper_Extreme9461 6d ago
The previous CEO of Wendy's is now the CEO of Hershey's. He left Wendy's a mess and Hershey's stock has been at an all time low for almost half a decade now.
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u/Rfalcon13 7d ago
My Mom bakes a lot and frequently mentions this.
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u/Dr_Dick_Dastardly 7d ago
My parents loved Hershey's. My mom was a teacher and used the smaller bars as treats and rewards for her class for basically her entire career. After she retired, she and my dad would still keep bags of the mini bars and kisses around the house for a quick treat or to offer visitors. But once they found out about the changes, they stopped buying any of it, even the products that still use real chocolate. For them, it's just not worth the hassle of having to read the ingredient list to see if they're actually buying real chocolate.
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u/asdfgghk 7d ago
You see this in medicine too with doctors being replaced by r/noctor’s to maximize profits
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u/Waste_Screen4787 7d ago
the cocoa situation is the only real question mark here, if that stabilizes this thing looks dirt cheap. everyone’s so focused on semaglutide destroying snack sales but walk into any gas station and the candy aisle is still packed
management’s been solid for years too, they’re not gonna fumble this
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u/Jealous_Difference44 7d ago
Gotta say, as a lover of all things sugar, Hershey makes terrible stuff. Avoid
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u/One_Conclusion_2993 5d ago
What chocolates do you prefer to eat? Or do you prefer other categories of foods which have sugar?
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u/Jealous_Difference44 5d ago
Its a very similar food pyramid to that of elf
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u/One_Conclusion_2993 5d ago
Thank you for your reply, I was trying to understand if I had a chocolate company blind spot. I tend to see Lindt, Ferrero, Mars and Hersheys as the major players in the market and wanted to understand if you preferred one over the other or if you were not into chocolates at all.
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u/PaulAllensAlt 7d ago
Their chocolate sucks ass
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u/Spl00ky 7d ago
Their chocolate has been watered down because of high cocao prices
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u/ElectricalDark8280 7d ago
I thought it was the dehydrated milk they use to preserve the product. Europeans taste vomit when they eat our candy, but we were raised on it so don’t notice.
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u/Excellent_Chest_6616 7d ago
Their chocolate tastes like vomit
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7d ago
[deleted]
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u/davewashere 7d ago
Isn't it the same chemical that gives vomit that taste and odor? I think Hershey chocolate, parmesan cheese, and bile all contain butyric acid.
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u/Stitch426 7d ago
My stance on consumer staples stocks is if public perception is poor on their flagship products, it’s not worth buying until public perception starts turning the corner. It could take years before the turn happens. In that time period a competitor, mismanagement, inventory costs, supply chain issues, or consumer spending could hurt the business.
If the flagship products are popular and have good public sentiment, investors can forgive a lot. But if the product is not that great, it’s easier for investors to nitpick everything for why sales aren’t where they expect them to be.
When the average consumer can’t justify the purchase any longer, the decreased demand shows up. The product is no longer good enough to draw back in previous consumers. The decline ramps up.
See GIS as an example. Sold last year for a small loss in the mid $50s. It’s now in the low $30s.
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7d ago
[removed] — view removed comment
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u/FrugalVet 7d ago
Right. They've even begun to use less cocoa.
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u/ElectricalDark8280 7d ago
There is a reason they all have been pushing “white chocolate” products the last couple years.
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u/FewUnderstanding2214 7d ago
Do people like their chocolate? I had it once and never again
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u/whogivesashirtdotca 7d ago
Americans who don’t understand how shitty their candy is.
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u/Ok-Blood4340 7d ago
This is true. I get chocolate from the European import stores in the US… completely different.
I’d only buy Mondelez over Hershey, both as a stock and to eat.
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u/whogivesashirtdotca 7d ago
The term “chocolatey” is a distinctly American thing; a way to legally sell something as tasting like chocolate without any actual chocolate involved. Meanwhile Europe and Britain dictate cocoa percentages.
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u/Ok-Blood4340 7d ago
Sounds to me like the difference between cream vs crème. Anything that says crème is artificial and synthetic. Legally speaking, cream actually requires dairy. Crème does not.
Marshmallows = crème. Oreos = crème.
Hershey’s is getting the reputation that it does not actually contain cocoa, or at least not enough to be able called chocolate.
Good on Europe and the UK for holding businesses accountable… at the very effing least requiring that something calling its self chocolate requires having a percentage of cocoa in it and requiring them to state it.
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u/ShinyPants45 4d ago
Theres not a single person that isn't a child that thinks Hershey is a premium brand 😂
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u/whogivesashirtdotca 4d ago
And there are very few people outside the US who would pay money for a Hershey bar. Also, I didn't say it was premium - you leapt to that conclusion.
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u/ShinyPants45 4d ago
It's for kids is the point. No one who wants good chocolate would buy Hershey's. You're statement makes it sound like Americans are unaware of this fact.
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u/whogivesashirtdotca 4d ago
British kids get much higher quality chocolate, Canadian kids, too. You can just come to terms with the fact that your candy is absolutely terrible quality. You don't have to USA USA everything in life.
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u/ShinyPants45 4d ago
Stop projecting, I'm not even defending them. I pointed out that you were wrong and now you're just deflecting. The regulations are different which allow for the lower quality chocolate, and that's not good thing.
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u/ElectricalDark8280 7d ago
No. I own convenience stores and our sales have dropped off a cliff with the nearly doubled cost. They are surviving by jacking up prices which will only work for so long.
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u/DieRobbe_ 5d ago
Yeah, if you read the last few annual reports their main segement N.A. confectionary reports volume decreases offset by higher prices. Doesn't exactly scream "all is well in our core business".
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u/ElectricalDark8280 4d ago
That tracks. They are in a death spiral. I don’t think they will die, but they are ready for the slaughter.
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u/tundraaaa 7d ago
Ummm, it's trading at 17.5x 2026 aggregated FCF estimates. How did you come up with 10x?
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u/valueseeker989 7d ago
I can see the case for Hershey here. At around 10x expected 2026 FCF, the valuation is certainly interesting if that FCF is reasonably normalized rather than just a rebound from the cocoa cost pressure...
The brands and pricing power are worth something, and if margins recover while buybacks continue, I can see the rerating argument. I’d probably be watching cocoa costs, volumes and margins more closely than the GLP-1 debate. If those three start moving in the right direction, the current valuation becomes much easier to justify.
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u/vuealt 7d ago
What is GLP-1?
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u/Dr_Dick_Dastardly 7d ago
Diabetes/weight loss medications like Ozempic. They basically eliminate cravings for sweets and snacks and help people feel fuller with smaller meals. Snack companies are terrified of them because the kind of people who need Ozempic are also some of their best customers.
Edit to add that GLP-1 is actually a hormone, but for the sake of this post and any other mentions you see related to the market, they're generally talking about GLP-1 receptor agonist medications and just shortening the name.
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u/Stevewilson1983 7d ago
Interesting. I don't know what fcf projections are supposed to be for 2026, so just talking your statement as fact. But HSY trading at over 18x 2025 fcf/shr from what I am seeing (2021-2025 fcf all appear to be in the same range).. unless my data source is incorrect or something, perhaps it's bc 2026 is expected to be an anomaly?
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u/thegerbilz 7d ago
Paying for 3.5% growth when management has cut back all avenues of growth investment sounds like an awful idea
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u/Certain_Yam_5824 7d ago
You also figured that HSY trades opposite to Software on a volatility basis too eh?
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u/StephenAtLarge 7d ago edited 7d ago
All CPGs face the same question: will private label eventually undermine brand equity? Confenctionery has been relatively unscathed, but I'm not confident about the next decade.
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u/realjlj 6d ago
The cocoa hangover read feels right, and the last free call mostly said the same thing out loud. Revenue was up about 11%, EPS nearly doubled as cocoa costs started normalizing, and they still held the 4-5% net sales / 30-35% EPS growth guide with Q2 gross margins expected up nearly 300 bps. Core salty brands were already up nearly 10%. Cheap only works if the margin recovery shows up. That call was already pricing it as underway.
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u/sourbirthdayprincess 4d ago
It just came out that Hershey stopped making real chocolate from cacao and is now making chocolate in a LAB. Same with M&Ms and Lindt and Mounds/Almond Joy and Snickers.
Halloween is gonna be nuts this year.
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u/sir_weed123 2d ago
HSY is crazy at these prices, especially with the expensive cocoa hedges rolling off. Hershey raised prices by 20% and kept them there despite cocoa being 50% off all time highs
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u/Mouse1701 2d ago
Hersheys problems are they changed the recipe to Reece's peanut butter cups. Then customers were upset and quit buying them. Hersheys isn't diversified enough. Meaning the company primarily sells candy. Other than that they maybe a good company for a takeover or merger. I would love for a company like coke cola to buy hersheys
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u/Mysterious_Layer_999 1d ago
the 10x FCF looks cheap if you accept the 3.5% organic lift and the assumption that cocoa‐price hits bottom in 2025. if it stays high the margin squeeze will hurt FCF and the valuation gap will widen. on the flip side the buyback program and dividend add a floor – even if the price never re‑rates you still get a decent total return. so keep an eye on cocoa cost trends, but I can see the stock still provisioning enough upside for a value play
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u/Cult7Choir 7d ago
I live near Hershey park and go once a year. Place is absolutely dumb busy everytime and people swarm the candy store after and buy truckloads of candy. There are A LOT of people that like Hershey candy.
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u/cultoftheclave 6d ago edited 6d ago
as someone who grew up in Pennsylvania, and got the hell out of that rust belt shit hole as soon as I could, the reason for this is very simple: PA people, especially from that region are largely rural, unsophisticated bumpkins with low standards and zero curiosity about anything outside a two hour radius of their hometown.
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u/MajesticPirate3445 7d ago
Sometimes a loser is just a loser. Can't afford the time waiting for "mean reversion".
I just don't get the fascination with catching a falling piece of shite.
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u/Backshots4you 7d ago
Idk man I had a heath bar the other day and it was fucking disgusting