Bull of the Day: The Hershey Co. (HSY)

The Hershey Company, a Zacks Rank #1 (Strong Buy), is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. The company also manufactures pantry items like baking ingredients, toppings and beverages; gum and mint refreshment products; and snack bites and mixes, as well as spreads.

The stock is displaying relative strength and has been making a series of 52-week highs. The price movement is a sign of strength as we head further into the new year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.

The lifeblood of a bull market is rotation, or the passing of the baton from one group to the next. With every year comes a different market theme. It’s our job to identify that theme as early as possible and position our portfolios to benefit from it. This year’s market action has witnessed a notable rotation in industry strength.

Hershey is part of the Zacks Food – Confectionery industry group, which currently ranks in the top 2% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months, just as it has so far this year:

Note the favorable metrics for this industry group below:

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.

Company Description

Founded in 1894, Hershey provides its products under numerous recognized brands such as Hershey’s, Reese’s, Jolly Rancher, barkTHINS, Twizzlers, SkinnyPop, and Pirates Booty, as well as many others. Hershey’s portfolio of iconic brands remains a core competitive advantage, supporting pricing power and category leadership.

The iconic American heritage brand markets and sells its products to wholesale distributors, chain grocery and drug stores, mass merchandisers, convenience stores, and department stores. It exports its products in approximately 65 countries worldwide.

Hershey continues to showcase the resilience of its brands and business model, even amid elevated cocoa and input cost pressures. Its strong pricing actions, deep retail connections and leadership in confectionery provide a stable revenue base, while its budding salty snacks portfolio expands its reach across the broader snacking category.

The global confectionery powerhouse reported strong growth in its North America Salty Snacks business during the fourth quarter of last year. Segment sales increased 28% year-over-year to $357 million during the quarter, backed by contributions from the LesserEvil acquisition as well as organic constant currency sales growth of 18.2%. Management has indicated a robust innovation pipeline extending into 2027, spanning both salty snacks and chocolate.

Earnings Trends and Future Estimates

Hershey HSY has established an impressive reporting history, surpassing earnings estimates in each of the past four quarters. The company most recently delivered fourth-quarter earnings back in February of $1.71 per share, which marked a 22.1% surprise over the $1.40/share consensus estimate.

The innovator of everyday treats delivered a trailing four-quarter average surprise of 17.2%. Consistently beating earnings estimates is a recipe for success.

Analysts covering HSY are in agreement and have raised full-year EPS estimates by 18.09% in the past 60 days. The Zacks Consensus Estimate now stands at $8.16/share, reflecting potential growth of nearly 30% relative to last year.

Let’s Get Technical

This market leader has seen its stock advance more than 20% already this year, all while the general market struggles to gain traction. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs throughout the past year. With both strong fundamental and technical indicators, HSY stock is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Hershey has recently witnessed positive revisions. As long as this trend remains intact (and HSY continues to deliver earnings beats), the stock will likely continue its bullish run.

Bottom Line

Backed by a leading industry group and history of earnings beats, it’s not difficult to see why HSY stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.

Hershey continues to strengthen its cost structure through multi-year operational initiatives aimed at modernizing manufacturing, procurement and supply-chain planning. Promising sales trends point to continued growth ahead.

Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put HSY on your shortlist.

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

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