Hershey Stock Faces Turbulence Amid Rising Cocoa Prices
Hershey’s (NYSE: HSY) stock has fallen approximately 45% from its 2023 highs, pushing its dividend yield to a historically high 3.7%. This dramatic decline raises key questions for investors:
- Is this a buying opportunity for long-term investors?
- Will high cocoa prices continue to pressure Hershey’s profit margins?
- Should existing shareholders hold or exit their positions amid industry headwinds?
With cocoa prices soaring due to supply constraints, adverse weather conditions, and speculative trading, Hershey faces a tough road ahead. However, the company’s strong brand reputation, pricing power, and history of navigating commodity cycles suggest it may still be a solid long-term investment.
In this article, we analyze the bearish and bullish cases for Hershey’s stock, providing insights into whether investors should buy, hold, or sell in 2025.
The Case for Selling Hershey Stock
1. Rising Cocoa Prices Will Crimp Profit Margins
Hershey is heavily dependent on cocoa, the primary ingredient in its chocolates. However, cocoa prices have skyrocketed due to:
- Chronic underinvestment in cocoa farming, leading to declining yields.
- Crop diseases impacting cocoa production in major growing regions.
- Adverse weather conditions, including droughts and heavy rains, reducing supply.
- Speculative trading, which has exacerbated price volatility.
Although Hershey hedges against commodity price fluctuations, these hedges are rolling off, meaning higher raw material costs will soon impact earnings.
2. Profit Warning for 2025
Hershey has already issued a profit warning, estimating that earnings could decline by as much as 36% in 2025. If cocoa prices remain elevated, profitability could remain under pressure beyond 2025, making it difficult for the stock to recover in the near term.
3. Changing Consumer Preferences
There is a growing shift towards healthier eating habits, with many consumers reducing sugar intake and opting for healthier snack alternatives. While chocolate remains popular, changing dietary preferences could limit Hershey’s future growth.
4. Competition and Pricing Pressures
Raising prices is a common strategy for consumer goods companies facing rising input costs. However, Hershey operates in a competitive landscape, and price-sensitive consumers may trade down to cheaper alternatives if price hikes are too steep. This could impact sales volumes and overall revenue growth.
Bottom Line for Sellers:
- If you can’t tolerate short-term volatility, selling may be a reasonable decision.
- If you believe cocoa prices will remain elevated for years, Hershey could face prolonged profitability challenges.
The Case for Holding Hershey Stock
1. Strong Brand Power & Pricing Strategy
Hershey is a market leader in the chocolate industry, with an extensive portfolio of brands, including:
- Hershey’s
- Reese’s
- Kit Kat (U.S. licensing agreement)
- Twizzlers
This brand strength allows Hershey to pass on higher costs to consumers. While inflation may pressure household budgets, chocolate is generally considered a low-cost indulgence, meaning consumers are less likely to cut it out completely.
2. Historically High Dividend Yield
With the stock’s decline, Hershey’s dividend yield has climbed to 3.7%—one of its highest levels in recent history. This makes it an attractive income-generating stock for long-term investors.
Additionally, Hershey has a consistent track record of dividend growth, providing a stable income stream despite market volatility.
3. Market Overreaction?
Historically, commodity price spikes have been cyclical. While cocoa prices are high now, they may eventually stabilize as:
- New investment in cocoa production increases supply.
- Weather conditions improve.
- Speculators exit the market.
If cocoa prices cool down, Hershey’s profit margins could rebound, lifting the stock price.
Bottom Line for Holders:
- If you’re a long-term investor who believes Hershey can navigate commodity cycles, holding may be a better strategy.
- If you’re focused on dividend income, Hershey’s high yield and strong cash flows make it a valuable portfolio addition.
The Case for Buying Hershey Stock
1. Historically Low Valuation = Buying Opportunity?
Hershey’s sharp decline presents a potential value opportunity. The stock is now trading at a discount relative to its historical valuation. For investors with a long-term horizon, this could be a chance to buy a high-quality company at a bargain price.
2. Resilience During Economic Uncertainty
During economic slowdowns, consumer staples like Hershey tend to outperform as consumers continue to buy affordable indulgences like chocolate. With potential economic volatility ahead, Hershey could provide defensive stability to an investment portfolio.
3. Strategic Growth Initiatives
Hershey has been investing in:
- Product innovation (healthier snack alternatives, sugar-free options).
- Expansion into international markets (emerging markets could provide new growth opportunities).
- Digital marketing & e-commerce to reach younger demographics.
If these strategies succeed, they could help Hershey offset rising costs and drive long-term growth.
Bottom Line for Buyers:
- If you believe cocoa prices will eventually decline, Hershey could recover strongly.
- If you’re a long-term investor, buying now could lock in a high dividend yield and potential capital appreciation.
Final Verdict: Buy, Hold, or Sell?
| Factor | Sell | Hold | Buy |
|---|---|---|---|
| Cocoa Prices | Rising costs hurt margins | Likely cyclical | Could stabilize long-term |
| Earnings Outlook | Expected decline in 2025 | Recovery potential | Long-term growth prospects |
| Dividend Yield | Less relevant for sellers | Attractive for income investors | Buying opportunity at high yield |
| Valuation | Could decline further | May recover over time | Historically low valuation |
| Consumer Trends | Healthier eating habits | Chocolate demand remains steady | Pricing power supports growth |
➡️ If you’re risk-averse and concerned about near-term profitability, selling may be the right decision.
➡️ If you’re focused on dividends and can handle volatility, holding makes sense.
➡️ If you’re a long-term investor looking for a bargain, buying at this discount could be an opportunity.
As always, investors should closely monitor commodity prices, market trends, and Hershey’s financial performance before making a decision.
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