As a former equity portfolio manager, I’ve learned that the best opportunities often lie behind the most obvious headwinds. When everyone is trying to quantify further downside and give up on an idea, my contrarian instincts kick in. Hershey (HSY) presents exactly this kind of setup today—a quality business temporarily hit hard by unprecedented commodity inflation, creating what could be a textbook value recovery story.

Getting Up to Speed Fast: The Power of Daloopa + Claude

As an investor with mainly a technology background, I needed to quickly understand the key factors driving HSY, especially how cocoa price fluctuations had affected their business over the last five years. Instead of spending hours analyzing earnings transcripts and building a model from scratch, I used Daloopa’s new MCP (Model Context Protocol) integration with Claude to evaluate the company’s financial performance.

Within minutes, I had pulled comprehensive data showing Hershey’s remarkable resilience through the cocoa crisis, with hyperlinks taking me exactly to the filing where these numbers were pulled from:

Hershey’s Performance Through the Cocoa Storm (2020-2024)

Year Net Sales Gross Margin Net Income EPS Cocoa Derivative Impact
2020 $8.15B 45.4% $1.28B $6.31 +$28.9M cost
2021 $8.97B 45.1% $1.48B $7.34 +$78.8M cost
2022 $10.42B 43.2% $1.65B $8.22 +$40.8M cost
2023 $11.16B 44.8% $1.86B $9.31 -$97.7M gain
2024 $11.20B 47.3% $2.22B $11.22 -$563.0M gain

What jumped out immediately was the company’s incredible operational performance despite the commodity headwinds as they effectively hedged the cocoa risk. Revenue grew 37% over five years, EPS increased 78%, and remarkably, gross margins actually expanded to their highest levels in 2024. However, 2025 has not been so kind to Hershey…

The Perfect Storm Creates the Perfect Setup

2025: Peak Pessimism

This year has been brutal for Hershey’s financials, but that’s exactly what creates the opportunity. Using Daloopa’s real-time data, I could see the dramatic impact:

Management lowered full-year 2025 EPS guidance after Q2 to reflect an increased tariff hit of $170-180 million, up from the $20 million initially estimated. Management stated that they would have increased the EPS guidance, save for the additional tariff headwind. CEO Michele Buck said talks with the Trump administration indicated some willingness to exempt natural resources that cannot be produced in the US.

The Catalyst Everyone’s Missing

While investors focus on 2025’s depressed earnings, they’re overlooking the most significant development: Hershey announced a “low double-digit” price increase across its confectionery portfolio on their July 23rd earnings call. Note, it takes around 90 days for the price increases to take effect so Q4 will be the first quarter to really see the impact. This isn’t just any pricing action—it represents roughly 16 points of pricing contribution on 80% of their business.

The Math That Gets Me Excited

  • Pricing Benefit: ~$1.4B incremental revenue from 16-point increase
  • Margin Expansion: Management targets 500+ basis points of gross margin recovery
  • EPS Normalization: From ~$5.70 in 2025 to $10+ potential in 2026, Street is well below that in the $7.00 range but a steady increase throughout the year would be ideal for the stock.
  • Cocoa Stabilization: Prices have already retreated from $12,000/MT peaks to ~$7,500/MT
  • Buyback Resumes: HSY has not repurchased shares since the March 2024 quarter as they preserved cash due to the cocoa cost crisis. As EBITDA/FCF increases in 2026, the debt to EBITDA of 1.9x and heading lower should support a resumption of the share buyback.

The Daloopa Advantage: Speed to Insight

What would have taken me hours of manual data collection and analysis, Daloopa’s MCP integration with Claude accomplished in minutes. I could quickly:

  • Pull five years of financial fundamentals with proper citations
  • Analyze derivative impacts and commodity hedging effectiveness
  • Compare pricing actions across different periods
  • Model various scenario outcomes with real-time data

This isn’t just about convenience—it’s about competitive advantage. In today’s markets, the first analyst to identify inflection points wins.

Risk Management: What Could Go Wrong

Key Risks:

  • Volume elasticity exceeds management’s 1:1 assumption
  • Cocoa prices spike again (though supply forecasts look better)
  • Consumer spending weakens, pressuring premium pricing
  • Tariffs escalate beyond the current $170-180M annual impact

Risk Mitigation:

  • Management has shown exceptional hedging sophistication ($563M gain in 2024)
  • A strong balance sheet provides flexibility
  • Diversification into salty snacks reduces cocoa dependency
  • Brand moats historically support premium pricing

The Setup: Asymmetric Risk/Reward

At current levels, HSY offers what I look for in quality value plays:

Downside Protection:

  • Trading below historical multiples despite stronger fundamentals
  • Dividend aristocrat with 55-year track record
  • Defensive characteristics of food staples

Upside Catalysts:

  • Margin recovery as pricing flows through
  • Potential cocoa cost normalization
  • Tariff relief possibilities
  • Market re-rating as earnings inflect higher
  • Share buyback resumption as credit metrics improve

The Bottom Line

Hershey represents exactly the type of opportunity I built my career finding: a quality business temporarily impaired by cyclical headwinds, trading at depressed multiples with clear catalysts for recovery. The market is pricing in permanent damage to a company that just delivered solid performance during the worst commodity crisis in decades.

Sometimes the best investments are hiding in plain sight, wrapped in temporary bad news. HSY might just be one of those times.

 

Disclosure: This analysis is for educational purposes only and does not constitute investment advice. Always consult with a qualified financial advisor before making investment decisions. Data sourced from Daloopa.