Food and Beverage Sector Ideas

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>>> The Hershey Company -- Halloween is just around the corner, and kids will be eager to fill their bags with candy, including some from one of the world's largest chocolate manufacturers, The Hershey Company (HSY). Despite experiencing a nearly 7% decline in 2023, Hershey's stock has delivered an impressive total return of 122% over the past five years, far outpacing the S&P 500's 68% total return.


https://www.fool.com/investing/2023/09/17/3-top-dividend-stocks-to-buy-now/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Management recently raised its quarterly dividend by 15% to $1.192 per share, resulting in an impressive yield of 2.3%. And Hershey has raised its quarterly dividend every year since 1972, except for 2009, during the Great Recession.

In recent years, Hershey has expanded its portfolio into snacks by acquiring SkinnyPop and Dot's Homestyle Pretzels. As a result, the company's revenue and net income are hitting record highs. Management recently reaffirmed its guidance for 8% revenue growth for 2023 versus 2022, resulting in net sales of roughly $11.2 billion, compared to $10.4 billion in 2022.

Despite Hershey's strong projected revenue growth, the stock might be experiencing a sell-off because the source of this growth is primarily price increases rather than increased sales volume. The company's second-quarter results show an average price increase of 7.7% for its products, coupled with a 2.7% decrease in sales volume from a year ago.

These price hikes are a result of the historically high costs of essential ingredients such as cocoa and sugar. However, Hershey boosted its gross margins by an impressive 3.4% year over year, reaching 45.5%.

This margin expansion could indicate that Hershey is becoming more efficient in managing its cost of goods sold. If cocoa and sugar prices return to normal levels, this efficiency could lead to further margin expansion, resulting in increased profitability for the company.

In summary, Hershey faces notable inflationary pressures and a potential decrease in consumption. Nevertheless, the stock currently looks undervalued when considering its historical P/E, which has averaged 26.3 over the past five years. With a forward P/E of 22.2, Hershey presents a potential investment opportunity at an attractive valuation.

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