Cocoa Volatility Keeps Hershey Candy Prices High, but Stock Already Priced for Recovery

What happened

Cocoa prices have swung wildly—from a record above $10,000 per metric ton in late 2024 to a low near $2,850 in April 2026, then rebounding to $5,700 by August 2026—but Hershey's Halloween candy remains pricey due to hedging, contracted costs, and pass-through lags. This volatility has crushed Hershey's gross margins, which fell from 47.3% in 2024 to 32.3% in the first nine months of 2025, with the company guiding to a 650-700 basis point compression for the full year. Despite the recent cocoa pullback from peaks, the market still values Hershey at ~28x earnings and ~45% above conservative intrinsic value estimates, reflecting expectations of a margin recovery. However, the renewed rally in cocoa raises questions about how quickly costs will normalize, even as management pushes pricing and productivity programs. The stock has recovered to the mid-$180s from its year-to-date lows, but the margin of safety remains thin given the uncertainty around input cost stability and volume elasticity.

Implication

Investors should treat the news as a reminder that cocoa remains volatile, with a recent rally that could delay Hershey's margin recovery and keep earnings under pressure longer than expected. The stock's premium valuation already discounts a successful normalization of input costs by 2026, leaving little room for error if cocoa prices stay elevated or if price increases further erode volumes. For those already holding, the franchise quality is high, but the risk/reward is unfavorable for adding new positions at current levels. A more attractive entry would likely emerge below $150 or on clear evidence that gross margins are recovering toward the mid-40s while volume trends hold. Until then, we would wait for either a material pullback in the stock or concrete signs that Hershey can restore margins structurally rather than just cyclically.

Thesis delta

The thesis remains WAIT. The news on cocoa's dramatic round trip and subsequent rally underscores the persistence of input cost volatility, which was already a key risk in our analysis, but does not alter our fundamental view of Hershey's business. The stock continues to trade at a significant premium to its conservative intrinsic value, and we prefer to wait for a better entry price or clearer evidence of sustainable margin recovery before shifting to a more constructive stance.