Why You Should Own Hershey Stock in 2024 & Beyond - HSY Stock Analysis

Summary

In this video, we dive into an analysis of Hershey Company (HSY) as a dividend stock, highlighting its strong brand portfolio, including Reese's and Hershey's Kisses. Despite recent challenges like rising cocoa prices and inflationary pressures, Hershey remains a top choice for dividend investors, offering a high yield of 3.08%. The company’s financial outlook is stable with expected long-term growth. With the stock down 35% from its peak, now could be a great opportunity for investors looking for a reliable dividend stock with potential upside. Don't miss the chance to access exclusive tools with a 50% discount.

Takeaways

• 😀 Hershey was founded in 1894 by Milton Hershey and has grown to become a major global brand with iconic products like Hershey's chocolates, Reese's, and Twizzlers.
• 😀 The company's growth was driven by a focus on quality and innovation, including expanding into international markets and acquiring complementary brands like Reese's.
• 😀 Hershey enjoys a strong brand identity, with a durable competitive advantage, making it an attractive investment for long-term growth.
• 😀 Despite strong brand positioning, Hershey faced a decline in revenue and profit in Q3 2024 due to rising cocoa prices, inflation, and higher operational costs.
• 😀 The company’s North American Confectionary business remains its largest segment, while the Salty Snacks division is growing rapidly, contributing to diversification.
• 😀 Hershey's international business showed weaker performance, but opportunities remain in expanding markets like China and Mexico.
• 😀 The stock’s price-to-earnings (PE) ratio indicates a slight overvaluation in the short term, but long-term growth prospects remain strong.
• 😀 Hershey has a reliable dividend history, increasing dividends consistently over the years, making it attractive for income-focused investors.
• 😀 The intrinsic value of Hershey stock suggests it may be undervalued over the long term based on conservative growth forecasts and its strong cash flow potential.
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• 😀 Overall, Hershey’s market strength, dividend yield, and brand recognition make it a solid pick for both value and dividend growth investors.

Q & A

What is the current performance of Hershey stock (HSY)?

Hershey stock has experienced a 35% decline from its all-time high in May 2023, making it an attractive buying opportunity for dividend investors, with its dividend yield currently at a 10-year high.

What makes Hershey a strong company from an investment perspective?

Hershey is a strong company due to its iconic brands like Reese’s, Hershey’s Kisses, and Twizzlers, which create a durable competitive advantage, or an 'economic moat,' that makes it difficult for competitors to unseat its market position.

What are the challenges Hershey is currently facing?

Hershey is dealing with increased commodity costs, particularly cocoa, and inflationary pressures, which have affected its revenue and net income. However, these are seen as short-term challenges.

How does Hershey's dividend performance compare to its historical trends?

Hershey has a solid history of dividend growth, with a nearly 100% 10-year dividend growth rate. While dividend growth may slow due to current challenges, its yield of 3.08% makes it an attractive dividend stock.

What is the expected long-term growth for Hershey?

Hershey expects long-term revenue growth to fall between 2-4% annually. Its growth is expected to accelerate after 2025 if cocoa prices stabilize and the company manages to reduce costs.

How has Hershey’s stock price been affected by its financial performance?

Hershey's stock price has fallen to $178.40, reflecting a more attractive valuation for long-term investors, despite recent challenges. Analysts expect some earnings decline over the next few years but foresee significant growth from 2026 onwards.

How does Hershey’s current stock price compare to its intrinsic value?

Using a discounted cash flow model, Hershey's stock is considered undervalued at its current price of $178.40. This suggests potential for significant upside as the company recovers and grows in the future.

What is the significance of Hershey’s economic moat?

Hershey's economic moat, derived from its strong portfolio of trusted brands, ensures that it can maintain market dominance despite competition. This gives it pricing power and brand loyalty that is difficult for competitors to replicate.

What is the impact of increased cocoa prices on Hershey’s profitability?

The rise in cocoa prices has been a major factor in increasing Hershey’s production costs, which has affected its profitability in the short term. However, these challenges are expected to be temporary, and long-term revenue growth is still expected.

How does Hershey's dividend payout ratio affect its sustainability?

Hershey's dividend payout ratio of 57% indicates that the dividend is sustainable, even with the current inflationary pressures and increased costs. This balance ensures that investors can rely on a steady income stream from the stock.