The Razor’s Edge
2-Year Price History
Recent Price
(4/24 4:01PM)
-3.4%
$36.18
52-Week Price
$30.27 – $44.32
Market Capitalization
$8.5 Billion
Most Recent Dividend
$1.19
About The Hershey Company
The Hershey Company is considered to operate in the Consumer Goods
sector. They specifically operate in the Confectioners
business segment contained within the Food & Beverage industry.
The Company is engaged in the manufacturing, marketing, selling and distributing package types of chocolate and confectionery products, food and beverage enhancers and gum and mint refreshment products.
A Word Of Caution
The Hershey Company (HSY) has experienced a very significant drop in earnings and/or earnings estimates. In and of itself this drop in earnings could be an indication of greater troubles within the company.
Please take a moment to look at the RazorWire feed on the left had side of the report to find more information regarding the company’s dropoff in performance. Each time Hershey Co. The is mentioned on business television recently should be displayed. This helps bring you up to date on any major issues they are facing right now.
Therefore, (and as always), check additional sources and available information regarding HSY before making an investment decision.
Ockham’s Rating
At Ockham Research, we believe that there is extremely useful information to be gleaned from historical evidence. When a stock is out of line with historical norms it could definitely be a signal that it is overvalued or undervalued. But as proponents of the Efficient Market Hypothesis will tell you, the market is never wrong about stock prices because everything that can be known about a stock has already been priced in. However, in extreme cases, such as the Tech bubble in the early 2000’s or more recently the credit crisis demonstrates there are certainly times where historical evidence can be misleading. Episodes such as this do prove that times of great market correction either positive or negative can be driven by factors outside of fundamentals.
The market and HSY’s sector are both behaving in a range that we consider to be within normal volatility ranges over the last six month timeframe. As of this week, we are reaffirming our Fairly Valued rating on HSY because the stock’s valuation has not improved tremendously for reasons discussed further in this report.
Beginning with price changes, since our last report dated 04/11/2009 the price of HSY has decreased by 2.02%, but this does not greatly change our outlook on HSY.
Also, there have been no meaningful adjustments in earnings expectations to report in the last week.
HSY Stock Evaluation
Looking at HSY since last week, there has been little movement in price on a percentage basis. Additionally, there haven’t been significant revisions to earnings estimates for HSY. Given this, we are maintaining our Fairly Valued rating. While there may not have been any meaningful changes in either price or earnings outlook, we still want to analyze where HSY is in relationship to its historical fundamentals. Looking at the ratios and multiples described below and throughout this report is the best way to evaluate the strength of HSY’s current Fairly Valued rating.
HSY Revenue
As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, HSY the high and low end of the Price to Sales per share ratios are 2.50x and 1.84x respectively.
Notice that HSY’s current Price to Sales per share ratio is 1.55x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $35.84, HSY is 29% below where we would expect to see it. This will beneficially factor into our final analysis of HSY as it is not often that this stock sinks to these levels.
HSY Cash Earnings
As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of HSY, Ockham views their current Cash Earnings as below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for HSY to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 18.80 and a 13.79 low over the same period.
At its current price of $35.84, the Price to Cash Earnings ratio of 14.51 per share for HSY is relatively attractive. At current profitability levels, a drop in share price would only improve our future expectations. Again, Cash Earnings is an incredibly valuable metric, and management at HSY must continue on its generation to improve our overall outlook for the stock.
HSY Dividends
A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.
When reviewing dividend yields for HSY, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. HSY’s estimated annual dividend is $1.19 resulting in a current dividend yield of 3.32%. The highest dividend yield from HSY over recent history was 3.93% while the lowest dividend yield was 1.38%. HSY’s current dividend yield is therefore significantly higher than its median dividend yield historically. In fact, the current yield is 25.05% above the median which weighs very positively on our analysis of HSY.
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The latest TV Media Discussion
“…They like what hersheys is doing, like the margins there. That premium chocolate I was mentioning, they see that trend slowing as well. See that continue to help boost HERSHEY’s bottom line. HERSHEY, even though I went to just 19 times estimated earnings. Trailing 27. Some may say still beaten down …”
“…So they raised their own prices. People sort of going downmarket to the HERSHEY shares. Still looking to stand behind 2 to 3%. Earnings may not be as robust as they earlier said. Expecting a challenging business …”
“…$1 billion in securities through deceptive advertising. Accuses them of wrongly assuring investors that the investments were as safe as cash. We’ll see HERSHEY posted some sweet numbers. Robert gray takes a closer look. There’s nothing like chocolate in a recession. >> story near and dear to your heart and sweet tooth no doubt, …”
“…On u.P.S., how much? >> it was a miss of 500 million. $10.9 billion in revenue versus >> that’s fairly significant. HERSHEY shares also trading the company’s earnings and revenue were ahead of and check out the shares of fifth third. Fifth third this morning reported a — I think it was a …”
“…To 55 versus 65. Raytheon had a good number on both the bottom line and the top an increased full year guidance. That is going to be a nice winner today. HERSHEY 38 cents, 3 cents above on better than expected revenue. What was that? I heard someone tell me to wrap. Oh, 20 hard. Thanks. Now timing the show. …”
“…Third, and some other regional banks, they have had a trading range and they have come up but nowhere near the rebounds we have seen of the j.P. Morgans and the goldmans, and the citis. Alexis: HERSHEY’s came in reporting 38 cents per share beating the street by about 4 looks like basically in line sort of here on the revenue what do you make of the number? >> well, candy sales are pretty good. I don’t know, maybe it’s because they are a cndom …”
“…Wouldn’t expect to have any problems. >> did buffett do something with >> it was mars last year that he teamed up with. >> mars, HERSHEY. >> chocolate companies. You look at them. >> one is a three musketeer, and >> m and m? Peanut m and ms. >> HERSHEY kisses. >> diamond offshore is looks like $2.51 a share. That’s a nice outperformance, it looks like too. Bid and ask isn’t going to help …”
“…Of credit suisse, and here in the states as we await names like conoco, u.P.S., american express, microsoft, amazon, and a couple that are coming in right now, namely HERSHEY and diamond offshore. Becky, you got either one of >> looking at HERSHEY. They earned 33 cents per share. Estimates at 35. 33 cents as reported. 38 cents they earned from operations. Taking a look very quickly, it says they’re affirming their guidance for 2009, talking about …”
“…Per share which would be better than expected. The revenue was expected to come in at about 1 1/4 billion and that appears to have been exactly what the company has now, HERSHEY you see the stock and the monitor behind me is over the one year time frame is you don’t see many charts like that is only 1/2 of 1% gain certainly better than 20 to 40 percent losses we have on most stocks we bring up. HERSHEY operating number 38 from chocolate to a defense contractor, raytheon is just reporting its numbers right now so let’s go over that number. $1.11 a share it looks as the headline coming out. …”
“…Connell mcshane is in our new york studio. Let’s start with connell. Connell: you are right that the technology news from last night is going to drive things this also breaking at this hour is HERSHEY, good to talk about chocolate this early in the morning the company was expected to have reported a profit of 34 cents per share. Looks like it reported a first share. …”
“…Kernen and carl quintanilla. On today’s agenda, we’ve got key economic reports and economic we’ll be looking for numbers from conco phillips, from auto nation and cme group, HERSHEY, marriott, philip morris, suntrust banks, union pacific and u.P.S. This is still in the height of earnings season. On the economy this morning, we have weekly jobless claims. …”
“…With the winner as mcd. Well done. >> i’m from akron, ohio. >> home of first merit, fmer. >> what do you think about the always delicious HERSHEY’s >> which one, HERSHEY’s I think the quarter’s going to be dynamite. I don’t think people have any idea how much this is levered to convenience store purchases. When gasoline went under $2, convenience store purchases HERSHEY’s costs are down, cocoa costs under control. New management. I think HERSHEY’s ought only food stock that has 15% to 20% up side when it reports. >> jeff from st. Louis. From the gateway to the west. I’d like your thoughts on accenture. >> which one, accenture? …”
“…But the valuation has gotten ahead of itself. I wouldn’t be a buyer. >> any hotel stocks would you be a buyer of? Or are they all anti-value stocks? >> yeah, the whole real estate >> HERSHEY reports before the investors look forget a profit that would be a drop of 8% year over year. >> you look at buffalo wild wings, youuyou look at yum, you look at mcdonald’s, you see a pattern where people haven’t given up on certain things. I don’t think you’re giving up on chocolate, either. I like HERSHEY’s, actually. >> I know lots of people who like HERSHEY’s. Conoco phillips reporting profit of 42 cents is expected, >> today’s crude and gas inventory numbers told you there’s a big problem for refining in this country, it’s a …”
“…Of job loss, the recession is giving americans lots of reasons toer worry. When people worry, they often eat more. I’m one of those giant two-foot long HERSHEY’s chocolate bars in my refrigerator, I chop it up and eat the pieces. First on cnbc, david, president and ceo of weightwatchers david, I believe what i’ve been …”
“…Pepsi tradesa at an uncredible 14 time earnings. Which is in line with coke, general mills and clorox but a bigger discount to alberta — to HERSHEY. And I don’t think that any of them are as well run as pepsi andile do like HERSHEY. Given pepsi’s consistent earnings, management, were the company’s fantastic ceo. Its products and new brands, it really should be trading at a …”
“…Been in the past. Alexis: you raise a great point, we were looking at some we looked at two specific companies. In fact we were looking at HERSHEY’s and boeing to see given if you were to buy these way back, I believe in 1960, yeah, 1960 to 2009, and you look at the stock prices and john, I don’t know if you can see, but boeing went from 25.50 up to 38.66 right now. But HERSHEY’s from 78.25 down to $35.10. That really echos charles’s point of view here which is you can’t just sort of blindly close …”
“…Costs and inevitable declines in average sales prices. Shares of the blackberry maker trading lower on the day down a little bit more than 3%. Credit suisse cutting its rating on candy maker HERSHEY’s to underperform from neutral and lowering its price target to $30 from $34 because of weak volume sales in valuation. HERSHEY shares up 12% in the past two weeks. Today, though, trading lower by a little more than 1%. And constellation brands the world’s largest winemaker cutting its full-year profit estimate below wall street’s estimate because of slowing …”
“…True. Of perhaps along the lipstick >> but remember where chocolate sold. Chocolate sold at 7-elevens. And if you’re spending four bucks at the pump, uh-uh. Two bucks, give me the chocolate can’t replace HERSHEY with any other brand — >> makes you feel better too. But i’m just using it as — I like safety right now. I don’t want to play offense until we’re less overbought. Big deal. >> and here we are sitting stuck between haines and hogan’s — >> I wonder whether julian robinson would think HERSHEY is defensive enough or is moving to new zealand defensive enough? >> new zealand is one of those that said we’re not going to put up with any of this, we’re going to stick with our free …”
“…President’s going to tell them on friday guys, i’m working with you, don’t give back the tarp. But that’s just my gut what will happen friday. Jim has a little game. Which stock would you rather buy? Deere or HERSHEY? >> this is just a classic where we are right now. And the answer is I think you want to get a little more in the defensive names. I’m really confident that HERSHEY’s going to have a great quarter. Deere’s going to have a great we’re back in that world. It’s great when you so-called beat the estimates because they’re lowered so much. But then you don’t raise them? See, I think deere’s estimates are too high, and I think they have to lower guidance. HERSHEY on the other hand, I think the estimates are too low, and I think they’ll raise so right now even though it’s economically not sensitive, I prefer HERSHEY to deere. I like it. Great dichotomy of where the market is right now. >> everyone talks about the biggest producers of chocolate or chocolate beans in the world are in africa. …”
“…Downgrade where analysts argue cost cutting measures already in the process. HERSHEY’s, a downside for packages food makers over all. They say the packaged food group is already down about 10% year …”
“…Largest credit card company and also a dow component. Making a cut from the overweight to an underweight j.P. Morgan citing the strained consumer and then HERSHEY cut with credit suisse and one of the names worth noting obviously, is hewlett-packard got coverage this morning at rbc capital markets and stronger margin profiles, solid management and …”
“…It’s time to go from a buy to a sell on american express at 13. >> that’s crazy. >> there’s an analyst there selling this today. HERSHEY was downgraded to underperform from neutral at credit suisse. >> when we come back, treasury ready to speak ahead of the opening bell. …”
“…>> caller: my question is about demonte. Dlm is also del monte. But petro. >> I will still recommend it but may I just add they think that HERSHEY’s is the better buy. I would buy HERSHEY’s right let’s go to bud in ohio. Bud? >> bud? >> caller: jim, a big nontoxic boo-yah to you from beautiful akron, ohio. >> akron, ohio, man, I tell you, …”
“…I just recommend coca-cola because of the dollar exposure. I’d rather do coke. Speaking of cad burry. My favorite candy company. Let me finish, my favorite candy company is HERSHEY which started to move up after I recommended it this week and i’m reiterating that I want people to buy hufrpy right here. Norman in virginia. >> caller: hey, mr. Cramer, a …”
“…Valuation’s worked, the street is not very positive on the six sells. That’s wrong, right? If only based on lower commodity something that HERSHEY benefits from in a huge way. The bottom line, a nice 4% a business that’s recession-resistant. And probably obama resachbt. …”
“…Every bit. I wouldn’t be this enthusiast bic this stock if it didn’t have some kind of decent, alleviate and dividend yield to prop the stock up. HERSHEY’s expected to pay out a buck 25 in dividends this year. It’s big. I don’t know if it’s notoriously big or juicy. This is more of a george clinton parliament funka dellic chocolate citi stock. More importantly, given that HERSHEY’s expected to generate $3 in cash flow per share, we don’t have to worry about them cutting the dividend. Heck, they may even raise it. …”
“…Quarter a big upside surprise. Sales for the last three months up 3.6% through the end of february. Oh and a 13.5% increase in tiny gain market share. This is a different HERSHEY that managed to put through an aggressive price increase watt causing sales to go down. The company’s on the rebound. HERSHEY gave modest sales guidance of 2%, 3%. So got some upside potentially. Now like a lot of food company, from the lower commodity costs at the same time as it puts through pricing increases that I …”
“…Beating the estimates by five. Sales first quarter brands grew about 8 importance in the retail sales up 5%. Convenient stores up 9%. That’s very important. That’s the impulse. HERSHEY had been getting hurt by a decline in impulse buying. And fall. Those weaker stores to a recent spike in gas plooen that’s over. Traffic inconvenienced stores way up. …”
“…Calls. Of picking up a market share because of the problems stemming from the bud inbev merger. I mean, if molson coors can pick up some I say ultimately HERSHEY can take from mars and wrigley, although so far not case. My prop’s people say why don’t you show the gum? This is for them. And the company closed a plant …”
“…Sales are in areas where its number one in market share. And 2008 private label gained about eight basis points of market share. Eh. HERSHEY did lose basis points. But most of that was due to competition from mars, no, not mars — mars the candy. More brandied candy, and this trends seems to have stabilized. HERSHEY market shares have seemed to seemed to deaccelerated from and now the company has the ability to take control its own a rarity in these miserable times and regain market share through advertising especially since advertising costs have become so cheap. If I were HERSHEY i’d be heavily advertising the fact that they have one candy that actually might be good for you. …”
“…I don’t think so. Private label penetration is in the low single digits for chocolate and around 10% for all an area where having a still brand helps and it doesn’t get much stronger than HERSHEY and plus people love to eat compulseively when they have lost a lot of money. Eating a lot of chocolate is like taking a lot of sar– thank heavens for makeup. HERSHEY itself has one of the lowest exposures to private labels of the candy companies. 3% of the revenues. No trade debt and also solid market share in all respective beyond that 94% of its u.S. …”
“…Us talk about. Treehouse for soup, baby pickles and nondairy creamer. HERSHEY we like because this is an area where you really can’t store brand chocolate bar, not much going there. How about chinese chocolate bars? …”
“…Deliver consistent earnings and even upside. We go to the pharmacy to find the companies that are recession resistant, like HERSHEY. HSY for all of you home gamers. There was a very nice little piece about investors buying far more — on HERSHEY than unusual over potential takeover rumors. The stock was actually down you know this is the only one that was down on my screen besides the gold stocks, so I felt, why not feature today? You’re buying it at the low. I don’t know if there will be a takeover. Are betting the $30 stock will break through $35 this month or next. Something that I have no trouble HERSHEY has no partner overseas I can’t care about the rumors. I don’t. I hear that the cadbury might so what? >> I think that cadbury’s a good partner to have. …”
“…He did wish us, though, good luck in hunting for good news. And remember, earlier in the show when bj’s ceo laura cents said candy sales wrup, that was not a surprise to john in wanesboro, virginia who said the HERSHEY’s manufacturing plant in virginia recently conducted a full-time hire for a couple of of adding. Aside from HERSHEY’s there’s not many companies in this area that are hiring. Croci may be few and far between but they are there. "the closing bell." >>> the fed’s latest beige book …”
“…>> as an example, I like cadbury, a chocolate company. They’ve spun off dr. Pepper. They are prepared to make love to someone. Either be bought by HERSHEY, merge with HERSHEY. After mars and wrigley got together, you knew that something else was going to happen. As an example, I think there’s going to be another round of consolidation in the utilities industry, and buffett says he …”
“…>> I won’t disagree. I saw mr. Wolf resigned as the he used to be my favorite but the numbers are better than people think. I think that point blank i’ll tell you that HERSHEY is the kind of thing that I like and I was surprised the cap came down. I think I had a great opportunity and that’s precisely the kind of stock I want to buy, along with gold and oil now that …”
“…>> is that a valentine’s brand some. >> they own victoria’s secret and all that. But you know, sticks, chocolate up 3%. >> went on the HERSHEY’s tour — >> price of cocoa. >> through the roof. >> should we be long cocoa these >> I don’t want to go there, because that’s a trade school. We’re back with some final trades for a three-day weekend, right after this. …”
“…A third of us will buy flowers. 1-800 flowers, biggest flower deliverer. That stock, if it is not dead it is certainly wilting. Billion and a half HERSHEY kisses will sell this year. HERSHEY, fight the calories? I think not. Your portfolio, HERSHEY up in a really tough year. Baby it is valentine’s day, honey, for you, my wife. I have tv wife I have to keep eye on. …”
“…>> brian: $15 billion are going to be spent on valentine’s day that’s a lot of money, $103 per down from last year. Keep your eye on HERSHEY. In honor of brian sullivan, pfizer and eli lilly, makers of …”
“…>>> time for the poll, continuing with valentine’s heem here. In honor of vallen dine’s day which stock best reflections your current relationship? HERSHEY’s sweet tliet, limited brands, a little naughty, you need a bailout. >> i’m not long the stock. I’ll tell you what, my friend with his thumbs over there got me thinking, my armenian buddy. …”