Hershey's Marketing Efforts Unlikely to Help Stock Over Short-Term

6/17 - "Hershey shares jumped up not too long ago when M&M Mars Candy Company agreed to a buyout. Shares were down big today after a Hershey's Board member seemed to indicate they were not looking to sell at this time...With the drop back to < $36 most of the risk seems to be out of these high-quality shares."

"Earnings will likely be down to about $1.82 this year from $2.08 in 2007. A rebound to about $1.94 is expected for 2009. Thus, Hershey shares now trade for 19.7x and 18.5x this year's and next year's projections. That compares with a 10-year median P/E of 23x and an almost identical 5-year average multiple of 22.8x."

"Hershey shares look to be good value with or without a buyout based on historical valuations. Even a lower than average 22 multiple on 2008 estimates would bring these shares back to $40.04 by year-end. Add in the two remaining quarterly dividends and the 6-month total return could be over 13%.

For me, though, I see a better play by using options sales along with the purchase of HSY shares."

6/20 - "Hershey Foods (HSY): "I see a house of pain for HSY. I am not going to recommend that stock."

6/3 - "The recent run-up in shares of The Hershey Co. appears to be the result of market speculation that the chocolate and candy company will enter a merger or joint venture...Goldman Sachs analyst Judy Hong has her doubts, qualifying the “market exuberance over potential strategic action as unwarranted.” As a result, she renewed her “sell” rating and US$32 price target on Hershey shares..."

"Ms. Hong does not see any meaningful JV opportunities for the company, which means no additional earnings per share benefit...She also struck a sobering note on the prospects for an impending strategic deal, outlining three major impediments for potential buyers: The Hershey Trust’s unwillingness to relinquish ownership, a lack of global manufacturing infrastructure, and finally, a share price that is currently at a "robust valuation."

6/18 - "While Hershey’s retail takeaway has moderately improved recently, we expect minimal EPS growth next year owing to further increases in brand support and commodity inflation. With further increases in advertising spending and emerging markets investment likely beyond 2009, we don’t expect Hershey to achieve its new 6-8% L-T EPS growth target before 2010. We also believe that achieving its 3-5% top line growth target will be difficult owing to weakness in the core mass-market milk chocolate category and competition in the premium segment."

"Our 12-month price target of $32 is based upon a 17x multiple on our 2009 EPS estimate, a modest premium to the current packaged food group average on 2008 estimates. While HSY’s fundamentals hardly warrant a premium multiple, market speculation about Hershey forming a growth-enhancing joint venture with a global confectionary player could support the multiple. We believe that the likelihood of HSY forming such a jv is low, however, owing to the Trust’s insistence on maintaining control and the likely lack of interest in HSY’s low-growth markets."

"We are cutting our 2009 EPS estimate from $1.92 to $1.88 based upon forecasts for greater than expected investment in brand support and higher than expected commodity costs. We are lowering our 2010 EPS estimate from $2.10 to $2.00 to reflect further increases in ad spending and emerging markets investment."