The Hershey Company (HSY): A Bull Case Theory

We came across a bullish thesis on The Hershey Company (HSY) on Value Investing Subreddit Page by Cautious-Garlic1992. In this article, we will summarize the bulls’ thesis on HSY. The Hershey Company (HSY)’s share was trading at $155.31 as of Jan 14^th. HSY’s trailing and forward P/E were 17.85 and 19.01 respectively according to Yahoo Finance.

Hershey has been a frequent topic of discussion recently, particularly due to pressure on its stock price. Despite this, the company maintains competitive advantages with its leading U.S. market share, strong pricing power, high operating margins, and disciplined capital allocation, as reflected in its return on invested capital (ROIC). Hershey’s diversification strategy, including its foray into salty snacks, has further strengthened its position, while its succession planning, under the leadership of Michele Buck, gives confidence that the company’s culture will continue to thrive after her eventual retirement.

Looking at the financials, Hershey’s 2024 revenue is expected to be flat on a year-over-year basis. With an operating margin forecast of 23% and reinvestment needs of $600 million, the company is projected to generate $1.7 billion in free cash flow to equity holders (FCFF). Over the next few years, Hershey is expected to return to its average growth rate of approximately 5-6%, which will primarily be driven by inorganic growth. This aligns with reinvestment needs of around 11% of sales, reflecting the firm’s commitment to strategic expansion. Margins are also expected to improve by 1-2 percentage points, supported by investments in inventory and supply chain management, as well as a softening cocoa market.

In projecting the company’s valuation over the next five years, a conservative terminal value calculation using a 2% growth rate and 5% reinvestment rate suggests a valuation of around $34 billion. These assumptions reflect a cautious outlook, accounting for potential risks, but they also present a strong investment case based on Hershey’s solid operational performance and long-term growth prospects.

The Hershey Company (HSY) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held HSY at the end of the third quarter which was 39 in the previous quarter. While we acknowledge the risk and potential of HSY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HSY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.