Markets

Hershey: Chocolate Kick

The nation's largest candy maker is embarking on an ambitious plan to spur growth.

Shares of Hershey, the nation's largest candy maker, may be down, but the company's growth prospects look sweet to analysts at two firms that recently upgraded its stock.

Hershey's first-quarter results didn't exactly excite investors' taste buds. Sales grew less than 1% versus the year-earlier quarter because of inventory reductions at Wal-Mart and because retailers stocked up during last year's fourth quarter in anticipation of price hikes. First-quarter profits rose 7%, to $121 million, or 50 cents a share -- a figure that lagged the average Wall Street estimate by a penny. The stock, currently $54, has dropped 16% over the past year.

Despite the feeble quarterly results, Stifel Nicolaus analysts George Askew and Oliver Wood upgraded Hershey's shares to "buy," with a 12-month price target of $57. "Hershey remains one of the best-positioned and most innovative companies in the food industry, and we believe the recent weakness in the shares represents a buying opportunity," the pair told clients. Citigroup also upgraded Hershey's shares, with a $59 price target.

Hershey, which makes such brands as Reese's, Kit Kat, and Almond Joy, is embarking on an ambitious plan to spur growth. The Hershey, Pa., company intends to trim its overall product lineup -- dumping unpopular items, such as king-size servings -- and instead focus on high-selling items including dark chocolate, refreshments, cookies and single-serving snack nuts. Hershey will also likely increase distribution of its dark-chocolate products, which make up the company's fastest-growing segment. Askew and Wood, the Stifel Nicolaus analysts, expect the growth initiative and new products to result in accelerating revenues over the next four quarters, and earnings-per-share growth in the low double digits.

New products, including Hershey's Kisses filled with peanut butter and Hershey's Cookies, helped boost sales 9%, to $4.8 billion, in 2005. Citigroup analysts estimate that Hershey's latest crop of new products, including Kissables and Ice Breakers, could add $100 million in sales this year.

One bitter note is that Hershey is a major consumer of sugar, the price of which has skyrocketed. The company expects to pay even more for cocoa and sugar in 2006 but plans to offset the cost increases by improving efficiency in operations and controlling costs in sales, marketing, and administration. Hershey expects sales to grow at 3% to 4% per year, and predicts that sales growth in 2006 will be "somewhat above" that forecast. The company also expects diluted earnings per share to grow 9% to 11% per year over the long term.

The stock (symbol HSY) currently trades at 21 times the $2.57 per share that analysts expect Hershey to earn in 2006, according to Thomson First Call.

--Katy Marquardt

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
9 Best Biotech ETFs to Play High-Octane Trends
ETFs

9 Best Biotech ETFs to Play High-Octane Trends

Biotechnology is a dynamic but often volatile industry. These biotech ETFs provide a lower-risk way to invest in the space.
July 8, 2021
SPACs 101: What Is a SPAC, And How Does It Work?
IPOs

SPACs 101: What Is a SPAC, And How Does It Work?

Why the buzz around special purpose acquisition companies (SPACs)? Here's everything you need to know about these "blank-check" firms.
July 6, 2021

Recommended

The Psychology Behind Your Worst Investment Decisions
investing

The Psychology Behind Your Worst Investment Decisions

We can torpedo our portfolios without even realizing it. Avoiding these seven traps will allow you to make rational investments.
July 22, 2021
A Responsible Way for Teenagers to Get into Investing? Maybe.
investing

A Responsible Way for Teenagers to Get into Investing? Maybe.

Fidelity has a discount brokerage platform just for kids called a Youth Account. It has some protections baked in, along with some opportunity to lear…
July 22, 2021
10 Facts You Must Know About Recessions
Markets

10 Facts You Must Know About Recessions

The Pandemic Recession officially ended in April 2020 after only two months, making it the shortest economic downturn in U.S. history. But what is a r…
July 20, 2021
How to Go to Cash
investing

How to Go to Cash

What exactly does it mean to 'go to cash,' and what should you do once you have?
July 19, 2021