1/27/2010-Citigroup Equity Research issued a note to clients early Wednesday reiterating its Buy rating on shares of Hershey Foods (NYSE:HSY) as well as its $49 target price, saying that they continue to "believe that Hershey represents an attractive investment."
Citi analyst David Driscoll said he believes the company is in store for "solid growth in 2010 given the ongoing momentum in the portfolio with chocolate market share up 40 basis points in the fourth quarter of 2009. In addition, Citigroup said it sees little risk to 2010 EPS on the upcoming fourth quarter of 2009 earnings report as management issued 2010 guidance of 6%-8% on its 3Q09 call while expressing good visibility into its 2010 cost profile. In addition, they view the 2010 consensus estimate as overly conservative.
Driscoll said, "We see significant upside in HSY shares with its current forward PE multiple of 15.7x representing a 10 year low, despite a successful 2009 when HSY surpassed consensus EPS ests. by 10% and is expected to grow EPS overall by 14% while increasing advertising dollars by 50%.We believe share buybacks are likely imminent given HSY's low multiple and strong balance sheet. Every $100 mm in share repo's is accretive to EPS by ~1%, with potential for $750 mm of repurchases in 2010. We expect in line or better 4Q09 EPS although reported volumes will likely be soft due to the timing of HSY's Valentines shipments which shifted out of the fourth quarter and into 1Q10. Nonetheless, retail level data suggests improving volume trends at HSY which should reveal themselves in 2010. We believe the 50% increase in advertising during 2009 has laid the foundation for 2010 volume growth and are projecting 2010 revenue growth of +4.0% driven by improved volumes (+2.5pp)."
Disclosure: HSY in UPTREND as of 1/19/10, C in DOWNTREND as of 10/28/09