“We’ll see Hershey posted some sweet numbers. Robert Gray takes a closer look. There’s nothing like chocolate in a recession.
…So they raised their own prices. People sort of going down market to the Hershey shares. Still looking to stand behind 2 to 3%. Earnings may not be as robust as they earlier said. Expecting a challenging business environment, but we like what Hershey’s is doing, like the margins there. That premium chocolate I was mentioning, they see that trend slowing as well. We’ll see that continue to help boost Hershey’s bottom line. Hershey’s, even though I went to just 19 times estimated earnings, trailing was 27. Some may say still beaten down.” Fox Business Network 4/23/2009.
It seems more people have been seeking the comfort in chocolate recently, as Hershey (HSY) posted a quarterly profit that exceeded analysts expectations. The company also reported that they have benefited from raising their prices, and this has apparently not had an adverse effect on sales. The longer period in lead of to the Easter season was a great for the company. Furthermore, some of the designer chocolate companies that offer higher end but also more expensive chocolate have fallen off quite a bit, and Hershey has benefited from the trade down from those premium sweets.
Hershey’s receives a Fairly Valued valuation from Ockham at present, but we are considering an upgrade for next week. The results were better than expected, and based on the current fundamentals we would not be surprised to see Hershey’s trading in the low $40’s before long. For example, the current price-to-sales for HSY is about 1.55x, whereas the historically normal range for this company is actually 1.84 to 2.5. So, with another solid quarter in the books it would be rational to expect Hershey to come closer into alignment with its historically normal valuation ranges.