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Overview

The Hershey Company (NYSE:HSY) is the leading North American manufacturer of chocolate and non-chocolate confectionery and chocolate-related pantry products. The company is also a leader in the gum and mint category of products.

The company was founded in 1894 and is headquartered in Hershey, Pennsylvania. The company's brands include Hershey, Reese's, Hershey's Kisses, Twizzlers, Almond Joy, Mounds, York, Kit Kat, etc. These products are marketed and sold in approximately 70 countries throughout the world.

In determining whether HSY is worth buying, I will look at the company's financial performance, current valuation, earnings, growth, and dividend history and compare them to two of HSY's peers in Tootsie Roll Industries, Inc. (NYSE:TR) and Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF).

Financial Performance

HSYTRRMCF
Profit Margin (trailing twelve months)10.65%9.77%4.33%
Operating Margin (trailing twelve months)18.74%12.89%14.62%
Return on Assets (trailing twelve months)17.09%5.09%14.27%
Return on Equity (trailing twelve months)65.95%8.10%8.28%
Revenue (trailing twelve months)$6.83B$544.08M$36.83M
Revenue Per Share (trailing twelve months)$30.45$9.06$6.08
Quarterly Revenue Growth (year over year)6.70%-5.70%5.40%

Looking at the table above, you can see that HSY outperforms TR and RMCF in virtually every financial category. HSY has better margins, better returns on assets and equity, higher revenue and higher revenue growth.

Ranking

  1. HSY
  2. RMCF
  3. TR

Current Valuation

HSYTRRMCF
Price/Earnings (trailing twelve months)27.8x37.2x23.6x
Price/Book (most recent quarter)19.0x3.0x4.2x
Earnings Per Share (trailing twelve months)$3.42$0.90$0.54
Current Price (EOD 8/19)$94.57$32.75$12.50
52-Week High$98.00$35.25$13.98
52-Week Low$68.09$24.21$10.00
200-Day Moving Average$87.98$30.84$12.58
50-Day Moving Average$93.67$33.91$12.96

Looking at the table above, you can see that HSY has a significantly higher price/book value compared to TR and RMCF. It also has the second highest price-to-earnings value as well. HSY is also the only one of the three companies currently priced above both its 200-day and 50-day moving averages.

Ranking

  1. RMCF - (lowest price to earnings)
  2. HSY - (highest earnings per share)
  3. TR - (significantly higher price to earnings compared to peers)

Earnings and Growth

HSYTRRMCF
EPS 1-Year Growth5.10%18.40%-65.20%
EPS 3-Year Growth12.29%1.01%-25.00%
EPS 5-Year Growth21.33%4.83%-15.45%
Revenue 1-Year Growth9.30%3.30%4.90%
Revenue 3-Year Growth6.35%2.12%7.01%
Revenue 5-Year Growth6.07%2.21%4.40%

Looking at the table above, you can see that HSY has had the most consistent growth. TR has had better earnings growth this year, but that is partially because of the low growth in the last 3 to 5 years. RMCF has seen fairly consistent revenue growth, but hasn't been able to translate that into positive earnings.

Ranking

  1. HSY
  2. TR
  3. RMCF

Dividends

HSYTRRMCF
Dividend Yield2.04%0.98%3.46%
Payout Ratio49.00%36.00%81.00%
1-Year Dividend Growth1.94%0.32%0.44%
3-Year Dividend Growth8.35%40.04%3.05%
5-Year Dividend Growth6.36%20.26%1.86%

Looking at the table above, you can see that RMCF has the highest yield of the three companies. However, it also has the highest payout ratio. TR's dividend has been a steady $0.08 quarterly dividend since 2005. The growth numbers in the table above reflect a special one-time dividend of $0.50 paid last year. I prefer to select growth over yield, which is why I rank HSY higher than RMCF in this category.

Ranking

  1. HSY - (highest growth)
  2. RMCF - (highest yield)
  3. TR - (lowest yield (lowest growth when special dividend is not included))

Conclusion

HSY compares very favorably to TR and RMCF in the various areas I looked at. I ranked HSY first in financial performance, earnings and growth, as well as, dividends. I ranked HSY second in current valuation. If there is one negative to the company, valuation is it. I normally don't like to invest in companies with a high price-to-earnings value, but in this case, I don't think it's a problem.

The reason I don't think it's a problem is because HSY has been able to consistently increase revenues and its bottom line over the past several years. I believe that Hershey will continue this trend as it sees increased growth, with focused efforts on countries like China, India, and Brazil.

With a safe and growing (since 2004) dividend now yielding over 2%, I consider HSY a buy. I know some investors will not find the stock attractive due to its high price-to-earnings value, but even for those investors, I would recommend keeping an eye on this stock, as any short-term decreases in stock price could present an attractive buying opportunity.

While any stock can decrease with overall market corrections, I feel that HSY will reward long-term investors with both dividend growth and price appreciation.

Source: Sweeten Your Portfolio With Hershey