By Peet Serfontein & Hashmeel Suka.
Hershey manufactures and sells chocolate confectionary, sugar candies, salted snacks as well as other items such as baking ingredients and beverages. The company is the largest chocolate producer in North America and boasts a portfolio of over 100 globally known brands such as Hershey's Kisses, Reese's Peanut Butter Cups, Cadbury and Almond Joy bars, as well as Kit Kat wafers. Products are sold to wholesale distributors and retailers throughout North America and are also exported to various other countries.
The company has seen decent growth over the past five years, with adjusted EPS and revenue increasing ~12% and ~7%, respectively, on a compounded annual basis. In addition to its defensive nature (i.e., stable demand), Hershey has also benefited from its ability to keep up with consumer preferences and trends, as well as from innovative marketing strategies.
Technically, the stock appears to be developing a fifth (and final) wave as per Elliot Wave analysis (refer to the first chart), signalling a strong move in the direction of the prevailing bullish trend. This wave is typically associated with increasing momentum, which could eventually lead to a new stock price high. It's important to note that trading based on this indicator should be done with additional caution.
The stock is trading below its 200-day simple moving average of ~$223 and we thus take a bullish contrarian stance.
Emerging upside momentum, according to both the MACD indicator as well as recent upwards movement of the On-balance Volume indicator, supports a bullish stance.
Share Information
| Share Code | HSY US |
|---|---|
| Industry | Food & Beverage |
| Market Capital (USD) | 39.16 billion |
| One Year Total Return | -9.63% |
| Return Year-to-Date | 2.70% |
| Current Price (USD) | 191.47 |
| 52 Week High (USD) | 276.88 |
| 52 Week Low (USD) | 178.82 |
| Financial Year End | December |
| The stock is trading not too far from its 52-week lows, though various technical indicators suggest a recovery soon. |
Consensus expectations
(Bloomberg)
| FY22 | FY23E | FY25E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 8.52 | 9.51 | 9.96 | 10.39 |
| Growth (%) | 11.65 | 4.65 | 4.39 | |
| Dividend Per Share (USD) | 3.87 | 4.43 | 4.85 | 5.20 |
| Growth (%) | 14.25 | 9.51 | 7.20 | |
| Forward PE (times) | 19.19 | 18.37 | 18.42 | |
| Forward Dividend Yield (%) | 2.54 | 2.72 | 2.71 | |
| The company is set to report strong bottom-line growth for FY23. Growth over the medium-term is expected to hold steady in the single digits. | ||||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | CWH - Buy (Continue to hold) |
AMZN - Buy (Continue to hold) |
GILD - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 21.50 | 138.07 | 80.00 |
| Current | 24.77 | 153.50 | 86.40 |
| Movement | 15.2% | 11.2% | 8.0% |
|
The price appears to be developing a right-angled broadening bottom pattern. The stock is testing its 200-day moving average. Fading upside momentum is a concern.
Our profit target remains at $27 with a trailing stop-loss at $22.50. Exit the trade around 13 March 2024. |
A developing megaphone pattern remains of interest. The stock remains above its 200-day moving average. Fading upside momentum is a concern.
Our profit target remains at $200 with a trailing stop-loss at $144.50. Exit the trade by 23 February 2024. |
The stock remains above its 200-day moving average and continues to display positive price momentum.
Our profit target remains at $97 with a trailing stop-loss at $79.20. Exit the trade around 19 April 2024. |
| Share Name and position | XLP - Buy (Continue to hold) |
CARZ - Buy (Continue to hold) |
J - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 70.66 | 53.61 | 133.83 |
| Current | 72.26 | 54.07 | 131.77 |
| Movement | 2.3% | 0.9% | -1.5% |
|
A price retracing from the lower range of the Bollinger bands remains of interest. The ETF continues to test its 200-day moving average. Upside price momentum has halted, which is a concern.
Our profit target remains at $76 with a trailing stop-loss of $70.60. Exit the trade by 9 February 2024. |
Price action developing an incomplete symmetrical triangle pattern remains of interest. The ETF remains just above its 200-day moving average. Upside price momentum has halted which is a concern.
Our profit target remains at $60 with a trailing stop-loss at $52. Exit the trade around 22 May 2024. |
Price action holding above key support remains of interest. The stock remains above its 200-day moving average. Fading downside price momentum is supportive.
Our profit target remains at $150, with a trailing stop-loss at $127.30. Exit the trade by 23 February 2024. |
