$HSY daily pick: sell Dec 18 $160 put (buy-side) after another drop on candy demand worries
$HSY: I'm selling the Dec 18 $160 put on Hershey after another 4% drop on candy demand worries.
At midday ($171.36):
9% under the 200-day
About 18x the 2027 EPS estimate with a 3.4% dividend yield
$2.05 credit, breakeven $157.95
About 1.3% in 39 days (~12% annualized)
I think the selloff is pricing in the weak volumes but not the margin recovery because Q3 adjusted EPS doubled to $2.64 and Hershey raised its 2026 EPS outlook to $8.58 to $8.74.
Worst case I own Hershey under $158, which is a better deal than a full size Reese's at the gas station these days.
Not financial advice
What happened: Hershey's Q3 on Oct 29 was a beat on paper. Adjusted EPS was $2.64 vs $2.11 expected and net sales rose 3% to $3.28B. But pricing added about 11 points while volume fell about 10 points and management cut the organic sales outlook to about 3% because consumers are more cautious and convenience stores are weak. The stock is down 3.8% today and 28% from the March high.
Why a put and not the stock: I like Hershey at a lower price and the chart has support between $156 and $160 (the Oct 1 low of $156.16 and the Oct 29 close of $160.28). The $160 strike is 6.6% under the current price and I get paid $205 per contract to wait. Expiry is before the next report which FMP has around Feb 4.
The risk: $0.22 of the Q3 EPS came from tariff refunds so the quarter is less clean than the headline. Volumes have been falling all year and most analysts rate it a Hold (25 Hold, 8 Buy, 3 Sell per FMP). If candy demand keeps shrinking, $160 could be a stop on the way down and not the floor.
What I'd watch: holiday sell-through and whether volumes improve in Q4 as management expects. Hershey says it has strong visibility into lower cocoa costs in 2027 and still expects a low double-digit earnings recovery next year. The stock goes ex-dividend Nov 16 for $1.452 a share.
Sources: Hershey 8-K Q3 2026 release: net sales $3,275.5M, adj EPS $2.64, 2026 adj EPS $8.58-$8.74, organic ~3% · Hershey Q3 2026 prepared remarks: $0.22 tariff refunds, cocoa deflation visibility, low double-digit 2027 EPS recovery · IDD: pricing ~11 pts, volume ~-10 pts, guidance raise · Benzinga via Webull: $2.64 vs $2.11 consensus, cautious consumer, convenience store weakness · Quiver: HSY down 4% Nov 9 on demand worries and analyst resets · ad-hoc-news: Nov 9 drop tied to weak four-week chocolate sales data
Not financial advice. For informational and educational purposes only.