Here's Why Hershey (HSY) is an Attractive Pick for Investors
The Hershey Company HSY appears to be an attractive investment option, courtesy of well-chalked measures to drive growth. The company is benefiting from its focus on boosting the snacks business and product innovation. Moreover, Hershey has been undertaking buyouts to augment portfolio strength and drive revenues. Moreover, its pricing policies and efforts to enhance operating efficiency have been yielding.
Notably, this trend continued in fourth-quarter 2019, with the top and the bottom line increasing year on year. Also, management expects net sales to rise in the range of 2-4% for 2020. For 2020, the company envisions adjusted earnings per share in the range of $6.13-$6.24. This view indicates a rise of 6-8% from the reported figure in 2019.
Clearly, encouraging performance and a positive outlook have raised analysts’ optimism regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for 2020 earnings has moved up by a couple of cents to $6.15 in the past 30 days. Moreover, Hershey’s shares have increased 3.9% since its earnings release. In fact, shares of this Zacks Rank #2 (Buy) company have surged 46.3% in the past year compared with the industry’s growth of 34.3%.
Buyouts: Key Catalyst
Buyouts have been playing an important role in augmenting Hershey’s portfolio strength as well as boosting revenues. In fact, net impact from buyouts and divestitures boosted sales growth by 2.2 points during the fourth quarter. Gains from the Pirate's brand acquisition (concluded in September 2018) supported the top line in the said quarter. Additionally, the company has been gaining from Amplify Snack Brands, acquired in January 2018 to expand in the snacking category. In August 2019, the company announced minority investments in Fulfill Holdings and Blue Stripes, whose business is likely to ramp up in the snacking arena.
Another significant addition to the company’s better-for-you snacking business is ONE Brands, LLC. The buyout was completed in September 2019 and is bolstering the company’s nutrition bar category. Markedly, One Brand increased 35% in traditional measured channels along with added strength in other channels like e-commerce during the fourth quarter. In fact, ONE brand is expected to make a positive impact of roughly 1 point on net sales in 2020.
Other Factors Driving Growth
Hershey’s core brands have been growing strongly on the back of advertising investments, in-store merchandising as well as programming and innovation. In connection with this, the company is optimistic about its Kit Kat Duos innovation along with expansion plans of THiNS platform. Further, the company expects to launch York THiNS and Reese's white THiNS by March 2020.
In addition to these, Hershey is progressing well with efforts to enhance operating efficiency. In this respect, the company’s SKU rationalizing efforts have been fruitful. Moreover, the company has been gaining from its Margin for Growth multi-year program. This program is intended to improve operating margin through supply-chain optimization, streamlining operating model and lowering administrative expenses. Additionally, the company has undertaken strategic pricing initiatives to improve mix. Notably, net price realization benefited Hershey’s top line by 3.6 points in the fourth quarter.
We believe that the aforementioned upsides are likely to help Hershey maintain its solid position in investors’ good books.
Other Top Picks
Helen of Troy Limited HELE, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 9.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Procter & Gamble Company PG, which carries a Zacks Rank #2, has a long-term earnings growth rate of 7.6%.
e.l.f. Beauty Inc ELF, which carries a Zacks Rank #2, has a long-term earnings growth rate of 3.8%.
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