Buy Hershey (HSY) Stock on the Dip for Defensive Safety?

Hershey’s HSY stock has seen a pullback from a 52-week high of $239 a share, which it hit after a strong Q4 report in February.

Nevertheless, Hershey shares have still soared more than 20% year to date and is a defensive stock that investors may be considering amid recent market volatility, as geopolitical tensions in the Middle East have led to surging oil prices.

Consumers tend to satisfy a sweet tooth regardless of economic cycles, which has historically made Hershey stock a defensive play with steady, recession-resistant demand.

The combination of essential-category products, strong brand loyalty, stable cash flows, and consistent dividends makes Hershey a go-to stock for investors seeking resilience during economic uncertainty.

Stable Demand & Strong Brand Portfolio

Hershey’s brands maintain strong loyalty and predictable sales, including Reese’s and Kit Kat outside of its namesake chocolate products. Supporting its core candy business has been Hershey’s expansion into salty snacks, seeing a 28% year over year increase in its Salty Snacks segment sales during Q4 to $357 million.

Hershey’s annual sales are expected to rise 5% this year and are projected to increase another 2% in fiscal 2027 to $12.54 billion.

Attractive Dividend & Cash Flow Stability

Defensive stocks often pay consistent dividends, and Hershey fits the bill here as well. Increasing its dividend for 15 consecutive years, Hershey has a generous 2.58% annual dividend yield that enticingly tops the S&P 500’s 1.11% average.

Steady earnings and strong cash flow have supported Hershey’s ongoing dividend payments. Having a strong cash position on the balance sheet, Hershey’s cash & equivalents have increased 181% in the last five years to $926 million from $329 million at the end of 2021.

Furthermore, Hershey’s annual operating cash flow typically exceeds its net income at over $2 billion, indicating excellent cash flow quality. Correlating with such, Hershey has an admirable free cash flow conversion rate of 142%, with the often preferred level being 80% or higher, as this shows a company’s accounting profits reliably turn into real, spendable cash that is able to strengthen its business and reward shareholders.

Hershey’s EPS Growth & Positive Revisions

Most intriguing is that earnings estimate revisions have continued to trend noticeably higher since Hershey impressively beat its Q4 EPS expectations by 22% (Q4 EPS of $1.71 versus consensus $1.40).

Suggesting the YTD rally in Hershey stock could regain steam is that FY26 and FY27 EPS revisions have spiked over 13% in the last 30 days from estimates of $7.06 and $8.38, respectively. Hershey’s annual earnings are now expected to spike 29% in FY26 to $8.16 per share, with FY27 EPS projected to jump another 16% to $9.48. 

Bottom Line

Hershey’s stock offers reliable defensive positioning thanks to its stable cash flows, iconic brands, and consistent consumer demand even during economic downturns.

Trading at a reasonable 27X forward earnings multiple, it does appear to be an ideal time to buy Hershey stock, which sports a Zacks Rank #1 (Strong Buy) based on the very positive trend of rising EPS revisions.

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This article originally published on Zacks Investment Research (zacks.com).

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