A Wide-Moat Dividend Stock to Buy That’s 18% Undervalued

Hershey’s stock has had a tough year: It’s underperformed the broad US market by more than 16 percentage points during the past 12 months. Blame elevated cocoa prices, which are 70% higher than they were in 2023. Yet we think Hershey has done a good job of blunting the hit to margins by pursuing other cost savings, altering price packs, and surgically raising prices across its mix. And we think the wide-moat company’s new CEO (formerly with Pepsi ) will make headway with Hershey’s nascent healthy snacks business. We think Hershey’s stock is a bargain today as it trades 18% below our $210 fair value estimate—and it offers an attractive yield, to boot. The stock is one of Morningstar Chief US Market Strategist Dave Sekera’s 3 Stocks to Buy After Earnings.

Hershey’s current challenges include rampant cocoa inflation and mounting financial constraints on consumers. However, we don’t think the confectioner’s leading position—with more than one-third of the US chocolate aisle—has been tarnished. To support its dominant standing, Hershey has been expanding capacity, enhancing its digital capabilities, and refining its supply chain. And although it is taking steps to mitigate inflationary concerns, we don’t expect it to cut brand spending. While its innovation pipeline was a bit scant in 2023, Hershey has more recently brought out new products aligned with evolving consumer trends; innovation was up more than 40% in 2024 over the prior year.

Key Morningstar Metrics for Hershey

• Fair Value Estimate: $210
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: Low

Economic Moat Rating

Hershey earns a wide economic moat rating for its solid intangible assets, which have also contributed to a cost advantage. The company has dominant share in its home market, an array of leading brands, and vast resources that it can invest to support its brands and enhance its capacity. We believe these factors have made Hershey a critical partner for retailers that are reluctant to risk out-of-stocks with unproven suppliers. Hershey’s brand advantage has contributed to a cost edge, which should enable it to invest in its leading brands and retail relationships to a greater extent than new entrants with limited budgets can, suggesting modest barriers to entry. This scale results in production and distribution advantages across the company’s expansive network. We expect Hershey’s returns on invested capital to remain comfortably above its cost of capital over the next 20 years.

Read more about Hershey’s moat rating.

Fair Value Estimate for Hershey Stock

Our $210 fair value estimate implies 2026 enterprise value/adjusted EBITDA of around 18 times. Our long-term forecast through 2024 includes around 3%-4% average annual sales growth and operating margin holding in the low 20s on average, a touch below the 23% average over the past five years. This underpins our forecast for gross margin to average in the mid-40s through 2034. We expect the company to spend around 7% of sales (more than $900 million) annually to support its brands and retail relationships. The company aims to cut costs and inefficiencies, realizing savings as it digitizes and automates more of its operations while optimizing its procurement and manufacturing networks.

Read more about Hershey’s fair value estimate.

Risk and Uncertainty

Hershey’s financial results could be strained if consumers opt for healthier offerings. Increased government regulation or taxes aimed at curbing obesity could hurt volume more than we currently forecast. Given its dependence on cocoa, Hershey is exposed to human rights issues in its supply chain that could lead to reputational risk and ultimately heightened government oversight. Volatile input costs—particularly for cocoa, sugar, and dairy—may occasionally erode Hershey’s profits. The impact can be especially pronounced for dairy costs, which can’t be hedged. Long term, we anticipate that increased raw material demand in faster-growing emerging markets will pressure commodity costs, potentially affecting the company’s profits.

Read more about Hershey’s risk and uncertainty.

Hershey Bulls Say

• Hershey has rationalized its fare over the past few years to ensure that shelf space and advertising dollars are allocated to the highest-return opportunities.
• Low-priced competition is scarce in US confectionery. Private-label products hold just a low-single-digit market share in chocolate, compared with around 36% for Hershey.
• The more recently salty lineup complements the company’s confectionery and unlocks the innovation potential that blends the two taste profiles, which Hershey is uniquely positioned to achieve.

Hershey Bears Say

• Unrelenting pressure on consumer pocketbooks could dent purchases of more indulgent and discretionary categories, such as confectionery and snacking.
• One-third of Hershey’s global employees operate under collective bargaining agreements, and the company may suffer as these contracts are renegotiated, given current labor constraints.
• Hershey expects to incur $160 million-$170 million of cost pressure from tariffs on cocoa in 2025.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Nov. 11, 2025, close unless otherwise noted.