Is Hershey Stock a Buy, Sell, or Hold in 2025?

Hershey (HSY) stock has been on a rollercoaster ride in recent years, with a significant decline from its 2023 highs. The stock's price has fallen by around 45%, pushing its dividend yield up to a historically high 3.7%. This raises the question: is Hershey stock a buy, sell, or hold in 2025? To answer this, we need to consider the company's recent performance, the impact of rising cocoa prices, and the long-term prospects of the chocolate industry.

The Case for Selling Hershey Stock

The sell story for Hershey stock is centered around the swift rise in cocoa prices, which is expected to crimp profit margins and leave the company with weak results for years to come. The cocoa market is facing chronic underinvestment, an illness affecting crop yields, and less-than-desirable weather in recent years. Speculators have also exacerbated the commodity's price swings, adding to the challenges faced by Hershey and other cocoa-dependent companies.

Hershey's hedging efforts have so far limited the impact of cocoa price volatility, but those hedges are set to roll off in 2025. The company has already warned that earnings could fall by as much as 36% in 2025, primarily due to higher commodity costs. If you aren't willing to hold on through what is likely to be a difficult period for the company, it might be best to sell Hershey or not buy it in the first place.



The Case for Holding Hershey Stock

Despite the challenges posed by rising cocoa prices, Hershey isn't new to the commodity cycle. The company has historically dealt with price volatility by cutting costs and raising prices, which is a common strategy employed by consumer staples companies. Given that chocolate is a relatively low-cost indulgent treat, price hikes are likely to be accepted by consumers.

There is also a complication regarding society-level issues, with people appearing to shift toward a healthier diet. However, chocolate has been a beloved food for a very long time, and it seems unlikely that this fact will change. The huge price decline Hershey has already experienced, coupled with the historically high yield, suggests that most of the damage has already been done to the stock price.

The Hershey Trust, a philanthropic entity that effectively controls Hershey the company, has a vested interest in ensuring that Hershey continues to operate in a reasonable manner and grows its dividend reliably over time. This means that Hershey is more beholden to its most important shareholder than to the broader Wall Street community. So long as The Hershey Trust is willing to give management time to deal with the current problems, Hershey can make appropriate long-term decisions without the pressure of perennially short-term-focused Wall Street.

The Case for Buying Hershey Stock

If you don't own Hershey stock but buy into the hold thesis, you might want to add it to your portfolio. The Hershey Trust's control over the company and its focus on long-term growth make Hershey an attractive investment option. However, it's essential to consider the potential risks and challenges posed by rising cocoa prices and the long-term prospects of the chocolate industry.

In conclusion, Hershey stock's future depends on how the company handles the potentially long-term headwinds created by a massive rise in the cost of cocoa. While the sell story has significant backing on Wall Street, the hold and buy cases also have compelling arguments. Ultimately, the decision to buy, sell, or hold Hershey stock in 2025 will depend on your investment horizon, risk tolerance, and confidence in the company's ability to navigate the challenges it faces.