Company description hershey co produces and markets

Info icon This preview shows pages 14–16. Sign up to view the full content.

View Full Document Right Arrow Icon
COMPANY DESCRIPTION Hershey Co. produces and markets chocolate and other confections, as well as chocolate-related grocery products. Its major brands include Hershey’s, Jolly Rancher, Kit Kat, Heath, Twizzlers, Reese’s, Ice Breakers and SkinnyPop. Hershey has expanded into new categories and markets in recent years with the acquisitions of Brookside, Krave, Shanghai Golden Monkey, Ripple Brand Collective, and Amplify Snack Brands. The company’s largest shareholder is the Hershey Trust Company. INDUSTRY Our rating on the Consumer Staples sector is Under-Weight. Investors are voting with their feet in this sector, recently reducing the sector’s weighting in the S&P 500 to a multiyear low. We note that consumers who shifted to generic products when money was tighter are simply not returning to familiar brand names. The sector accounts for 8.1% of the S&P 500, with a five- year range of 8%-13%. We think investors should consider allocating 7%-8% of their diversified portfolios to this group. The sector includes industries such as food, beverages, household products and grocery stores. The sector underperformed in 2016, with a gain of 2.6%, but outperformed in 2015, with a gain of 3.8%. It underperformed in 2017, with a gain of 10.5%. According to our models, the projected P/E ratio on 2018 earnings is 19.3, ahead of the market multiple of 18.2. Sector earnings are expected to increase 8.6% in 2018 and 7.0% in 2017 after rising 4.2% in 2016. The sector’s debt ratios are reasonable, with an average debt-to-cap ratio of 45%, in line with the market average. Yields of 2.6% on average are higher than the market’s yield of about 1.8%. VALUATION We think that HSY shares are attractively valued at recent prices near $102, near the low end of their 52-week range of $101-$116. On the fundamentals, the metrics point to value. The stock trades at 19.1-times our 2018 non-GAAP EPS forecast, below the peer average of 20.7 and the five-year historical range of 20.5-29.3. Peers include, but are not limited to, Kellogg (K), Tyson Foods (TSN), Hormel Foods (HRL), General Mills (GES) and Campbell Soup (CPB). The price/sales multiple of 2.9 is above the peer average of 2.0 and near the midpoint of the historical range of 2.5-3.4. The price/cash flow multiple of 18.5 is above the peer average of 15.2 but in the lower half of the historical range of 14.8-29.1. We are maintaining our BUY rating. Our revised target price of $120, combined with the dividend, implies a potential total return of 22% from current levels. On February 5, BUY-rated HSY closed at $100.17, down $2.80. (David Coleman, 2/5/18)
Image of page 14

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
M ARKET D IGEST - 15 - PUBLIC SERVICE ENTERPRISE GROUP INC. (NYSE: PEG, $48.84) .................................... BUY PEG: Raising 2018 EPS estimate; reaffirming BUY * We view the company’s increased spending on electric transmission and gas pipeline projects as a strong plus, as these facilities are more likely to provide higher returns on equity than those earned on distribution and generation assets.
Image of page 15
Image of page 16
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern