The candy industry behemoth Hershey reported third-quarter earnings that exceeded Wall Street forecasts and improved its outlook as more consumers purchased its sweet and savory snacks.
The shares of Hershey Co. (NYSE: HSY) are fully valued, but the company is well-positioned to maintain stronger revenue growth than its packaged food competitors.
What is Hershey Stock?
Hershey (HSY 0.27%) shareholders are trouncing the market this year. The stock rose 14% in the first half of 2022, according to data provided by S&P Global Market Intelligence, compared to a 21% drop in the S&P 500.
When you take a step back and look at the rally more comprehensively, the shares are up 26% over the course of the last full year, while the market as a whole is down 12%. Over the past three years, the confectioner has also outperformed the S&P 500. The success of Hershey can be directly attributed to its strong operating results at a time when many investors are looking for more stability and dividend income.
Is HSY Stock Overvalued?
The company’s valuation is the one factor that might discourage investors. The price-to-earnings (P/E) ratio of a company does not always provide all the information. One excellent example for the industry is Hershey’s, which has a profit margin of over 16%.
Though its P/E of over 28x is difficult to ignore. That is above the sector average, which is about 19x earnings, and is nearly twice as high as the S&P 500 average.
The key question is whether the company’s expansion can maintain that valuation. And this is where analysts appear to be struggling. Over the past five years, Hershey’s has experienced average revenue and earnings growth at a double-digit rate. Over the next five years, both are predicted to reach low single digits.
Heading into earnings, HSY stock was trading above the consensus price target of analysts tracked by MarketBeat. Although there hasn’t been much reaction to the earnings report, the stock still has a moderate buy rating. Upgrades to the price target might be forthcoming.
The HSY stock is close to an important level of support at about $225 from a purely technical perspective. The general downward trend prior to earnings suggests it may recover if it holds at this level. If this support doesn’t hold, the next line to keep an eye on is between $210 and $215.
Although some investors may wish for that, hoping is not a strategy. This could be the best dip for investors in a while, barring any unanticipated bad news.
Have Earnings and Dividends Been Growing?
The best dividend stocks are typically those of companies with steadily rising earnings per share because these companies typically find it simpler to increase dividends per share. The business might have to reduce its dividend if earnings decline significantly. We are therefore pleased to see that Hershey’s earnings per share have increased 18% annually over the past five years. A compelling combination that could indicate the company is focused on reinvesting to grow earnings further is that earnings per share are rising quickly and the company is keeping more than half of its earnings within the business. Future growth initiatives will be easier to finance as a result, and we think this is an appealing combination. In addition, the dividend can always be raised in the future.
Checking the historical rate of dividend growth is the main method most investors use to evaluate a company’s dividend prospects. Over the past ten years, Hershey has produced an average annual dividend growth of 11%. It is encouraging to see both dividends per share and earnings per share increase significantly over a number of years.
Key Takeaways
Hershey has a proven track record of outperforming its competitors during periods of low consumer confidence, making the stock a desirable investment in the current, volatile market environment.
For dividend and dividend growth investors, its safe and sustainable dividend payments at a fair price may be appealing.
The management is confident that the demand for their products will probably continue to be strong throughout the rest of the year, as evidenced by Q2 results and an improved outlook for 2022.
FAQs
Is Hershey’s a Good Investment?
We anticipate an above average return from the HSY shares relative to the market over the coming few months based on Zacks’ proprietary data, which shows that Hershey Company (The) is currently rated as a Zacks Rank 2.
Why Should I Buy Hershey Stock?
The forward multiple of 23.9 for Hershey isn’t much higher than the average forward multiple of 21.1 for the confectioners sector. This is a justifiably high valuation given the company’s immense brand power and excellent growth prospects. This is what motivates dividend growth investors to purchase the stock.
What is the Prediction of Hershey Stock?
The 19 analysts offering 12-month price forecasts for Hershey Co have a median target of 255.00, with a high estimate of 280.00 and a low estimate of 228.00. From the most recent price of $254.32, the median estimate represents an increase of +0.27%.
