uploads///HSY Valuation

Is Hershey’s Current Valuation Warranted?

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Dec. 4 2020, Updated 10:43 a.m. ET

Valuation summary

As of April 27, 2017, Hershey (HSY) was trading at a 12-month forward PE (price-to-earnings) ratio of 21.8x. This means that Hershey is trading at a premium to the S&P 500 Consumer Staples Index’s forward PE ratio of 21.3x and the S&P 500’s (SPX) forward PE ratio of 18.6x.

Moreover, the company’s current valuation is also higher than the peer group average of 19.7x. As of April 27, 2017, Mondelēz International (MDLZ), Kellogg Company (K), Campbell Soup Company (CPB), and Conagra Brands (CAG) were trading at forward PE multiples of 21.4x, 18.1x, 18.4x, and 20.9x, respectively.

The 12-month forward PE multiple differs among companies based on several factors including growth expectations, leverage, profitability, business model, and risk-return profiles.

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Growth expectations

As stated in the earlier part of the series, management now expects sales to increase at the low end of its projected growth range of 2% to 3% in 2017, which includes a benefit of 50 basis points from acquisitions. The company’s portfolio restructuring, industry-leading brands, the addition of new and innovative products, and healthy market share growth in North America and emerging markets are likely to accelerate the company’s top-line growth.

However, the industry-wide slowdown, market share losses in China, and adverse currency movement could pose challenges in the near-term. Analysts expect the company’s top line to rise about 2% in 2017.

Management expects its adjusted EPS to be at the higher end of its projected range of $4.72–$4.81, reflecting a YoY increase of 7%–9%. Productivity savings and reduction in costs are likely to boost the company’s bottom line performance. Analysts expect the company’s bottom line to improve by 8.9% in 2017.

For more updates, visit our Consumer Staples page.

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