Hershey’s Sweet Comeback: Why Investors Are Taking Notice

Key Points

• Hershey’s stock fell to a 52-week low on the eve of its fourth quarter 2024 earnings report.
• Shares staged a 12% rally on top and bottom-line beats and mixed 2025 guidance.
• Hershey was able to hedge against the surge in cocoa prices to help boost gross margins by 1,170 bps YoY to 54% in Q4.

Iconic candy and snacks manufacturer The Hershey Co. NYSE: HSY stock recently hit a 52-week low, sounding alarm bells for value investors.

The consumer staples sector giant saw shares rip higher after announcing its fourth quarter of 2024 earnings report, which firmly beat both top and bottom-line consensus analyst estimates.

While the stock has bounced 12% off its lows, shares still pose a good value at these levels. Its competitors, Mondelez International Inc. NASDAQ: MDLZ and Tootsie Roll Industries Inc. NYSE: TR, also find their stocks in the bargain bin.

High Cocoa Prices Causing Candy Stocks To Sell Off

Cocoa futures reached an all-time high in mid-December and have remained at elevated levels after a slight pullback. Most of the world’s cocoa, around two-thirds, comes from West Africa, specifically the Ivory Coast and Ghana. Weather conditions have caused drier weather, which has made cocoa trees more susceptible to diseases and resulting in lower output. China has also taken a large financial interest in West Africa, building processing plants and warehouses to take larger control of the world’s cocoa supply.

Hershey’s Successful Hedging Helped to Expand Margins

Higher cocoa prices mean higher input costs for Hershey, which compresses margins, but they do pass a chunk of it to consumers, which is why chocolate prices have been high at the grocery store. Unfortunately, the higher prices can hurt demand, especially as consumers become more frugal or embrace the "No Buy" trend. However, to their credit, Hershey actually expanded its gross margin by 1,170 bps to 54% in Q4, driven by derivative mark-to-market gains, higher sales volume, supply chain productivity, net price realized, and a timing benefit related to the inventory valuation method. Adjusted gross margin still rose 60 bps to 44.8% in Q4. The operating profit margin rose 1,500 bps to 32.5%, and the adjusted operating profit margin rose 360 bps to 24.1%.

Q4 Earnings Were Still Strong, But Guidance Was Mixed

For Q4 2024, Hershey reported an EPS of $2.69, beating consensus analyst estimates by 32 cents. Revenues grew 8.7% YoY to $2.89 billion, beating consensus estimates of $2.84 billion. Net income rose 130.6% YoY to $3.92 per diluted share. Hershey’s diverse portfolio of products outside of chocolate also helped drive profits. While Hershey is known best for chocolates like its Kisses, Reese’s, Heath, Symphony, Lily’s, Cadbury, Mr. Goodbar, Rolos, Skor, 5^th Avenue, and Kit Kat brands, they also have salty snacks like SkinnyPop, Pirate's Booty, and Dot's Pretzels. Its non-chocolate brands include Twizzlers, Jolly Rancher, Honest Gummies, Good & Plenty, Bubble Yum, Payday, One, Mounds, Breath Savers, and One protein bars.

Hershey Issues Mixed 2025 Guidance, But Stock Stages a Relief Rally

Hershey expects a sizeable full-year 2025 EPS drop to $6.00 to $6.18 vs. $7.33 consensus analyst estimates. Revenue is expected to grow at least 2% YoY to at least $11.43 billion versus $11.39 billion consensus estimates. Adjusted EPS is expected to fall in the mid-30% range. Despite the weaker guidance, Hershey stock staged a rally.

CEO Michelle Buck detailed Hershey's expanding its supply chain, "We're continuing to see production increase with nearly half of the production today coming from areas outside of Ivory Coast and Ghana. We think that's really healthy for the global cocoa supply over time. It's going to be much more diversified. And that diversification is going to provide an inherent resilience, just balancing weather factors and geopolitical factors, et cetera.”

HSY Stock Attempts a V-Bottom

A V-bottom is a reversal pattern comprised of a steady and sharp sell-off that makes a swing low before triggering a market structure low (MSL) buy trigger to stage a rally back to the starting point of the sell-off.

HSY stock fell from the $171.59 Fib level to a swing low of $140.13 heading into its Q4 earnings report. Shares gapped the following day and formed the daily market structure low (MSL) buy trigger above $156.69, which was the high of the day. The MSL triggered the following day to continue its rally. The V-bottom should confirm if it stages a rally back to the $171.59 Fib.

The daily anchored VWAP support is at $153.55, and RSI is slipping to the 52-band. (Fib) pullback support levels are at $168.71, $160.63, $140.38, and $123.51.

HSY stock’s average consensus price target is 3.9% higher at $164.15, and its highest analyst price target sits at $225.00. It has 16 analysts' Hold Ratings and five Sell ratings. The stock has a 3.39% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered calls at upside Fib levels executes a wheel strategy for income in addition to the 3.47% dividend yield.