GLP-1 Drugs Intensify Demand Risks for Hershey Amid Cocoa Squeeze and Rich Valuation

What happened

A new article warns that GLP-1 weight-loss drugs could erode snacking demand by reducing appetite, adding a structural threat to Hershey's core business. This emerges as Hershey, per the DeepValue report, faces severe margin compression from cocoa spikes, tariffs, and cost inflation, with gross margins down sharply in 2025. The stock trades at ~$188, about 45% above a conservative DCF anchor, offering thin margin of safety while pricing in a recovery. The report already cites GLP-1 adoption as a risk, but the article suggests it may be more impactful than management's mild assessment, potentially accelerating volume declines. Thus, Hershey confronts both cyclical margin pressures and nascent secular demand headwinds, complicating its path to normalized earnings.

Implication

The potential for GLP-1 drugs to suppress snacking appetite introduces a new variable that could undermine Hershey's volume stability and pricing power, especially in its dominant confectionery segment. This necessitates a critical review of long-term growth assumptions, possibly lowering intrinsic value estimates beyond the current DCF anchor that already indicates overvaluation. Combined with existing commodity volatility and margin troughs, the risk-reward skews further toward patience, as any failure in demand recovery could trigger multiple compression. Investors must now monitor volume trends and management updates on GLP-1 impacts more rigorously, alongside cocoa cost normalization and AAA productivity gains. Ignoring this could lead to overexposure if the market underestimates the cumulative effect of structural shifts on Hershey's earnings durability.

Thesis delta

The DeepValue report already identified GLP-1 adoption as a monitoring item, but the new article highlights its potential to be more disruptive than previously assumed, shifting the risk from speculative to more immediate. This reinforces the 'WAIT' recommendation by adding demand erosion as a tangible threat that could delay or diminish margin recovery, warranting a tougher stance on valuation until evidence of resilience emerges.