Sweeten Your Portfolio with This Stock
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amidst the global economic turmoil, investors rush towards safe investments in big companies. The reason being that the business operations of such companies is well diversified, which to an extent protects the company’s financials from macroeconomic uncertainty. The investment would be even safer if the company deals directly with the consumer, dealing in consumer products which are consumed on a daily basis. Such companies tend to have a stable and steady demand for their products, offering modest growth opportunities even when the economy is not doing well. Hershey’s (NYSE: HSY) is one such company, which reported a 7% increase in revenue in 2011; when the US economy was struggling to grow.
The Hershey Company, founded in 1893, is one of the largest confectioners in the US with major names like Hershey’s and Reese’s as its brands. The company, with a market capitalization of $16.93 billion, produces both chocolate and non-chocolate confectionaries along with baking ingredients, toppings, and chewing gums. The company reach extends to both North and South America; along with Asia, Europe, Africa, and Middle East.
The best returns?
The major competitors of The Hershey Company are Kraft Foods (NASDAQ: KRFT) and Nestle (NASDAQOTH: NSRGY). Kraft foods acquired Cadbury’s a few years ago, which Hershey’s was also trying to acquire, but lost out on the bid. In terms of returns, the company has been outperforming its peers for the last 2 years. Hershey’s turns out to be the best investment with returns approaching a stellar 58%.
To beat the competition and increase its market share worldwide, Hershey’s has been continuously investing money in advertising and marketing campaigns. Also in order to save costs, Project Next Century was announced in 2010, under which the company will be transitioning to a new facility in West. The expenses incurred are expected to be $150 million in 2012. The transition is expected to complete in 2014, at that time the project is expected to save the company up to $80 million annually on expenses. That would be a savings of around 58%, which would directly reflect on the company’s profitability, which eventually would mean a blockbuster future for the Hershey’s investors.
A Fundamental Overview
|
Company |
Return on Assets |
Profit Margin |
Payout ratio |
Dividend |
|
Hershey’s |
14.99% |
10.62% |
47.22% |
2.1% |
|
Kraft Foods |
3.69% |
6.67% |
57.21% |
2.9% |
|
Nestle |
13.5% |
10.6% |
72% |
3.4% |
From the comparison table, we can see that Hershey’s has the best Return on Assets and enjoys the highest Profit Margin amongst its peers. The company has the lowest Payout Ratio, which means that the company retains most of its earnings, and can later be used for strategic expansions and acquisitions. Though the company pays the lowest dividend, other metrics when coupled together make The Hershey Company, our fundamental pick.
The numbers game
The company recently reported a 7% jump in topline earnings for the past two years and the management expects the growth for 2012 to be between 7-9%. The revenues stood at $1.4 billion, up 6.7% Y-o-Y, along with a 4.4% jump in earnings. Earnings now stand at $135.7 million and the company expects the EPS to be 10-12% higher than the EPS in 2011. Overall the results met the market expectations with analysts don’t see any problems with the numbers.
Conclusion
Hershey’s turns out to be the best performer in the industry for the past 2 years without fail. The company has better fundamentals compared to its peers, and with a dividend yield of 2.1%, the stock looks all the more attractive. The company has also been able to post positive financial results that met the market expectations and Hershey’s is looking to save on expenses big time. These points make The Hershey Company a compelling buy.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
