Well-sought-after confectioner The Hershey Company (HSY - Get Rating) witnessed solid sales during Halloween and expects this demand to continue into the upcoming holiday season. The company raised its 2022 sales and adjusted EPS outlook.

HSY increased its sales growth guidance to 14%-15% from 12%-14%. Also, it increased its adjusted EPS growth outlook from 12%-14% to 14%-15%. Michele Buck, HSY’s President and CEO said, “We have strong momentum exiting the year.”

On the other hand, the demand for chocolate confectionery has multiplied rapidly over the past years, which is expected to boost significant growth for HSY. The chocolate confectionery market size is projected to grow at a CAGR of 4.7% until 2025.

In addition, HSY has paid dividends for 33 consecutive years. Its dividend payouts have increased at an 8.7% CAGR over the past five years and a 9% CAGR over the past three years. Its current dividend yield is 1.78%, and its four-year average yield is 2.02%.

HSY has gained marginally over the past month to close the last trading session at $232.17. It has gained 20% year-to-date and 27.4% over the past year.

Here is what could shape HSY’s performance in the near term:

Solid Financials

HSY’s North America Confectionery sales came in at $2.24 billion for the third quarter that ended October 2, 2022, up 10.4% year-over-year. Its international sales came in at $217.58 million, up 15.4% year-over-year. Moreover, its total sales came in at $2.73 billion, up 15.6% year-over-year.

In addition, its non-GAAP net income came in at $447.06 million, up 2.8% year-over-year, while its non-GAAP EPS increased 3.3% year-over-year to $2.17.

Favorable Analyst Estimates

Analysts expect HSY’s revenue to increase 15.3% year-over-year to $10.34 billion in 2022 and 6% year-over-year to $10.96 billion in 2023. Also, its EPS is expected to increase 14.9% year-over-year to $8.26 in 2022 and 7.7% year-over-year to $8.90 in 2023.

HSY’s EPS is estimated to grow 10.6% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters.

Robust Profitability

HSY’s trailing-12-month gross profit margin of 43.27% is 36.8% higher than the industry average of 31.62%. Its trailing-12-month EBITDA and net income margins of 25.32% and 15.69% are 106.7% and 250% higher than the industry averages of 12.25% and 4.48%, respectively.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 56.46%, 17.65%, and 14.62%, compare with the industry averages of 10.84%, 6.18%, and 3.93%, respectively.

POWR Ratings Reflect Promising Outlook

HSY has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HSY has a B grade for Quality and Sentiment, consistent with its higher-than-industry profitability margins and favorable analyst estimates, respectively.

In the 82-stock Food Makers industry, HSY is ranked #25. The industry is rated B.

Click here for the additional POWR Ratings for HSY (Growth, Value, Momentum, Stability).

View all the top stocks in the Food Makers industry here.

Bottom Line

HSY’s 2022 holiday sales are expected to be robust. Moreover, HSY recently launched its first-ever HERSHEY’S Hot Chocolate Bombs, available with marshmallows or cinnamon chips. This exciting product addition is expected to drive more sales during the holidays.

HSY is trading above its 50-day and 200-day moving averages of $226.61 and $219.79, respectively. Given the stock’s sound profitability, it might be an ideal buy now.

How Does The Hershey Company (HSY) Stack up Against Its Peers?

While HSY has an overall POWR Rating of B, one might consider looking at its industry peers, Pilgrim’s Pride Corporation (PPC - Get Rating), Lifeway Foods, Inc. (LWAY - Get Rating), and Sysco Corporation (SYY - Get Rating), which have an overall A (Strong Buy) rating.

HSY shares were trading at $232.17 per share on Thursday morning, down $0.02 (-0.01%). Year-to-date, HSY has gained 22.18%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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