Hershey Has Cemented Its Edge in the U.S. Confection Aisle, but Shares Far From Sweet

Wide-moat Hershey’s competitive prowess was on full display during its latest investor day in Hershey, Pennsylvania. But despite its recent success (boasting mid-single-digit annual sales growth and 200 basis points of operating margin expansion to 23% since CEO Michele Buck took the helm in 2017), management seems intent to charge ahead, prioritizing investments to enhance its capabilities and brand standing through stepped-up innovation, marketing, and distribution. This should ensure its fare wins with consumers and its entrenched retail standing doesn't waver. Even so, we view shares as quite rich, trading at a 35% premium to our $180 fair value estimate (which remains in place), underpinned by our expectations for 3.9% average annual sales growth in the long term (at the high end of management’s 2%-4% target), against operating margins that hold in the low-20s through fiscal 2032.