The Hershey Company (NYSE:HSY) manufactures chocolate, candy, and salty snacks, selling through retailers and distributors. North American confectionery remains its main earnings engine, while brands such as SkinnyPop and Dot’s broaden its exposure to snacking. Recognizable products and widespread availability support repeat purchases. This means that the company continues to strengthen its competitive advantage. Read more here.
Easing commodity pressure is rebuilding chocolate profits after a difficult year, but salty-snack expansion has yet to lift segment profit. The investment question is whether the valuation adequately reflects that recovery and the cost of expanding beyond confectionery. Though HSY is popular in its industry, there are 5 stocks that rank higher than HSY in our best sugar stocks list.
Shelf Space Must Produce Profitable Repeat Purchases
The Hershey Company benefits from brands such as Reese’s that encourage retailers to stock its products and consumers to seek them out. Established retail relationships can help newer snacks gain distribution, while shared manufacturing and delivery infrastructure can spread costs across more sales.
Those advantages require advertising, product development, and dependable replenishment. The Hershey Company increased second-quarter salty-snack sales 22.9%, but acquisitions contributed 22.3 percentage points, leaving organic growth of 0.6%. Like price-led growth with uneven volumes, acquisition growth requires scrutiny of underlying demand.
Retail sales to consumers for the existing U.S. salty-snack portfolio grew 6.5% over twelve weeks through late June, excluding LesserEvil, LLC. Supply constraints and planned private-label reductions held back shipments. Improving availability can turn that consumer demand into additional orders.
Nevertheless, salty-snack segment income fell 5.9%, with margin dropping five percentage points to 16.1%. These segment measures exclude unallocated corporate costs and specified charges. Higher logistics and marketing costs, promotions, and unfavorable mix outweighed volume gains and productivity improvements. Distribution scale creates shareholder value when additional orders cover the cost of serving them. The established chocolate franchise supports valuation; the smaller snack portfolio still needs to demonstrate that financial benefit.
Improving Margins Support the Forward Valuation
The Hershey Company carries approximately 18x forward P/E and 23x trailing P/E. The trailing measure uses reported earnings over the past twelve months; the forward measure uses forecast earnings. Improving confectionery profitability supports the forward valuation.
Management expects 2026 adjusted diluted EPS of $8.36–$8.52, up 32.5%–35%. Pricing, lower commodity costs and productivity are improving the profit retained from each sales dollar. Second-quarter adjusted operating margin increased to 20.2% from 15.7%, providing operating support for the recovery. Management also expects approximately $100 million of savings in 2026 from its automation and efficiency program.
Commodity-hedge revaluations amplify the reported rebound. Second-quarter GAAP EPS rose to $2.26 from $0.31 as commodity-derivative losses became gains; adjusted EPS rose to $1.90 from $1.21. Adjusted earnings exclude unallocated derivative revaluations, restructuring and acquisition-related costs. Derivative revaluations affect reported profit before the associated inventory is sold, making their timing different from the cost of chocolate actually shipped.
For The Hershey Company, a lower tax rate also helped adjusted EPS because the prior-year quarter included an additional tax reserve. That comparison benefit boosts growth once.
Management expects recovery to extend into 2027, followed by long-term earnings growth of 6%–8%. Sustaining the valuation requires productivity and profitable demand after the commodity and tax comparisons become less favorable.
The Discount to Last Year Requires Durable Earnings
The 18x forward P/E for The Hershey Company compares with approximately 27x at year-end 2025. Investors are paying substantially less per dollar of forecast profit, but the earnings base has been unusually volatile.
Adjusted EPS declined from $9.37 in 2024 to $6.31 in 2025 as higher commodity costs and reduced tax benefits weighed on profitability. Even the 2026 guidance remains below the 2024 result. Recovering from that depressed year explains why rapid forecast growth can coexist with modest underlying sales expansion.
The discount becomes more compelling if restored margins survive without another round of large price increases. Second-quarter North American confectionery pricing added approximately 14 percentage points to sales growth, while volume and mix subtracted approximately ten points, reflecting price sensitivity and shipment timing. Consumers can switch products or purchase less when prices rise.
Earning a higher multiple would require more balanced growth: stable demand, retained pricing and productivity savings that exceed continuing brand and technology spending. Management’s 3%–3.5% organic-sales growth outlook places much of the earnings burden on profitability.
Similar Peer Multiples Put the Focus on Earnings Quality
Mondelēz International, Inc. (NASDAQ:MDLZ) is the closest operating peer because it also sells branded chocolate and snacks through established retail networks. Its broader biscuit portfolio and international exposure diversify demand, while adding currency and regional risks.
The Hershey Company trades at 18x forward earnings against the peer’s 19x, a small discount. The peer expects 2026 adjusted EPS growth of zero to 5% at constant currency, against the company’s 32.5%–35% recovery outlook for the same year. That difference favors the domestic specialist, although recovery from depressed profits should not be valued as a permanent growth rate.
Profitability provides stronger support for similar valuations. Second-quarter company-defined adjusted operating margins were 20.2% versus 13.1% for the peer. More revenue becomes operating profit, providing greater capacity to absorb investment and financing costs. However, the peer’s wider product and geographic mix offers diversification that the confectionery-heavy business is still building.
Acquisitions increase the demands on The Hershey Company. Its November 2025 purchase of LesserEvil, LLC required approximately $769 million initially, funded with cash and short-term borrowing, with up to $200 million of contingent consideration. June borrowings totaled approximately $5.6 billion against $791 million of cash. First-half net interest expense increased 10% to approximately $100 million as short-term debt rose. Acquired products must deliver cash growth that survives the acquisition’s financing burden.
First-half operating cash of $888 million less $204 million of capital expenditure left approximately $684 million. Less cash was tied up in prepaid expenses and other current assets than a year earlier, providing a timing benefit that need not recur. Dividends of $574 million and repurchases of $439 million together exceeded cash generated after capital spending. Strong margins support the multiple, but expansion and shareholder distributions must leave room to manage borrowing. HSY’s dividend is often overlooked, but it is among the best long-term dividend stocks billionaires are investing in.
Conclusion
The Hershey Company looks fairly valued on forward earnings. Its brand strength, recovering confectionery margins, and valuation close to its nearest peer support that assessment. A higher multiple needs evidence that improving chocolate economics can become sustained earnings growth across the portfolio.
Sales must grow without discounts, advertising, and logistics consuming the additional profit. Acquisitions must lift earnings after financing costs, while cash generation funds necessary reinvestment. Persistent confectionery volume weakness or further salty-snack profit declines would undermine the recovery supporting the valuation.
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This article is originally published at Insider Monkey.
