Hershey has become a stock market star
Shares of the chocolate maker are up 30% this year, and analysts expect the gains to continue.
By Jonathan Berr
Shares of Hershey Foods (HSY), the maker of the iconic chocolate bar, have gained 30% this year as the company continues to find new ways to satisfy consumers' seemingly insatiable appetite for sweets.
These gains aren't a fleeting sugar high. Hershey, founded by Milton S. Hershey in 1894, has made all the right moves under CEO John Bilbrey. For instance, it began offering smaller portion sizes with Kit Kat Minis, Twizzler Bites and Jolly Rancher Bites in response to the growing consumer interest in healthier eating and smaller portion sizes. These new products have been a hit with consumers.Hershey, which recently introduced Lancaster, its first new brand in 30 years, is also aggressively expanding overseas. It aims to have 25% of its sales from outside the U.S. by 2017, a goal that seems quite doable.
Of course, not everything is sweet for the Hershey, Pa., company. Cocoa prices recently hit a one-year high due to concerns about the quantity and quality of next season’s crop in West Africa, where most of the world’s supply originates, according to The Wall Street Journal. Hershey, though, has survived swings in commodity prices for decades and there is no reason to think it couldn’t rise to this challenge as well.
The National Retail Federation expects consumers to spend more than $2 billion on Halloween sweets this year, so raising prices may not be a viable option for Hershey. And once the trick-or-treaters are done, Hershey has to prepare for Christmas and Valentine's Day, which are also important for the candy industry.
Hershey's latest earnings report was excellent. Not only did the candy maker post solid quarterly results and increase its dividend, but it also raised profit and sales forecasts for the year. The good times should continue in the September and December quarters, where analysts are expecting Hershey to generate sales gains of more than 7% in each period.
Shares of Hershey are trading about 4% higher than their average 52-week price target of $97.75. Analysts at Citibank think the stock could hit $110, but that estimate may prove to be conservative. The stock trades at a price-to-earnings multiple of nearly 30, which is a premium to its peers and at a five-year high. Nonetheless, this is a stock investors should buy now.
If Bilbrey's plans come to fruition, returns for Hershey shareholders should continue to be sweet.
And that's Killer Companies.
More from Top Stocks
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.