Core Viewpoint - The article discusses the contrasting investment opportunities presented by Costco and Hershey, suggesting that while Costco has performed well due to crowd enthusiasm, Hershey may present a contrarian buying opportunity due to its current undervaluation and strong brand power [2][3][10]. Costco Overview - Costco has a strong reputation as a leading retail company, known for its wide selection and low prices, supported by a membership fee model that drives profits [4]. - The stock has delivered a 222% return over the past five years, significantly outperforming the S&P 500's 102% return [2]. - Costco's average price-to-earnings (P/E) ratio over the past decade is 35, indicating a premium valuation, but earnings growth is expected to slow to about 9% annually, raising concerns about sustaining such high valuations [5]. Hershey Overview - Hershey is a major player in the confectionery industry, with well-known brands and a recent expansion into snacks, maintaining a high return on invested capital (ROIC) averaging over 17% [6][7]. - The company has historically provided substantial returns, with nearly 44,000% growth over the past five decades, making it a strong long-term investment [8]. - Currently, Hershey faces challenges due to adverse conditions affecting cocoa supply, leading to increased commodity prices and negatively impacting sales [9]. Investment Considerations for Hershey - Hershey's stock is currently trading at a P/E ratio of about 20, below its historical average of 25, and its dividend yield has reached 3%, indicating potential undervaluation [10][11]. - Despite short-term challenges, Hershey is viewed as a resilient company with a strong reputation, suggesting that it may recover once cocoa prices stabilize [11]. - Long-term investors may find Hershey to be a more attractive option compared to Costco, which may not sustain its current valuation levels [12].

Group 1 - The focus is on long-term growth and dividend growth investing, emphasizing the importance of profitability over low valuation [1] - Key metrics for evaluating stocks include margins, free cash flow stability and growth, and returns on invested capital [1] - The approach involves researching high-quality companies and continuously seeking to deepen understanding of them [1]

Core Insights - The article discusses Hershey's (HSY) business strategy, management quality, and financial health, highlighting its over 3% dividend yield as a potential indicator of future performance [1] Business Strategy - Hershey's business strategy is analyzed, focusing on how it positions itself in the market and its approach to growth [1] Management Quality - The quality of management at Hershey is evaluated, emphasizing leadership effectiveness and decision-making processes [1] Financial Health - Financial health metrics are reviewed, including profitability, revenue growth, and overall financial stability, which are crucial for assessing investment potential [1]

Group 1 - The article assesses two major snack companies, Hershey and Mondelez International, in the context of the upcoming Halloween season, highlighting their iconic brands like Reese's and Kit Kat [1] - The analysis is informed by Joseph Jones, a professor with over fifteen years of market study experience, focusing on dividend growth investment strategies [1] Group 2 - The article does not provide specific financial data or performance metrics for Hershey or Mondelez International [2]

Group 1: Hershey Company - The Hershey Company operates in recession-resistant industries, showcasing stability with a five-year beta of 0.37, indicating lower volatility compared to the broader market [2] - The company's current drawdown of 33% from its all-time high is its third-largest in three decades, following significant drops during past market crashes [2] - Despite recent challenges, Hershey's enterprise value to EBITDA ratio has improved from an all-time high of 24 to 15, indicating a more reasonable valuation [3] - Hershey is facing short-term headwinds, including a new enterprise resource planning system and fluctuating cocoa prices, but its market-leading brands are expected to endure [4] - The company has increased its dividend payments by 32% over the past three quarters, with the current payout using only 55% of net income, allowing for future increases [5] - Hershey's leadership position and recent acquisitions, such as Skinny Pop Popcorn and Dot's Homestyle Pretzels, have contributed to sales growth of 13% and 65% annually since 2019 [4][6] Group 2: MTY Food Group - MTY Food Group's stability is attributed to its diversified portfolio of approximately 90 quick-service food brands, catering to various cuisines and seasonal demands [7] - The company's asset-light model, primarily through franchising, allows for stable free cash flow margins, maintaining a 20% margin during the pandemic [8] - MTY has made 27 acquisitions worth over $1.7 billion in the last decade, effectively redeploying free cash flow into new ventures [9] - The current dividend yield of 2.3% is at a decade-high outside of the 2020 crash, utilizing only 14% of free cash flow, indicating potential for significant future increases [9] - MTY's shares are trading at an EV/FCF ratio of 10, prompting management to buy back shares at discounted prices, with a 39% drop from all-time highs [9][10] - The company has reduced its share count by 1.2% annually since 2019, enhancing cash returns to shareholders through dividends [10]

Core Insights - Hershey has announced a five-year agreement with nine cocoa-producing cooperatives in Côte d'Ivoire as part of its "Cocoa For Good" strategy, which involves a total investment of $500 million over ten years to improve the well-being of cocoa farming communities [1][4]. Group 1: Agreement Details - The agreement includes a memorandum of understanding between Hershey, Sucden, and the nine cooperatives, focusing on professionalizing cocoa farming, improving profitability, investing in community resources, and preserving the environment [2][4]. - This initiative aims to build lasting relationships with farmers, providing stability and enabling direct engagement in addressing on-farm challenges [2][3]. Group 2: Investment and Programs - In addition to the $500 million investment, Hershey launched a $40 million Income Accelerator program in 2023 and is funding the construction of primary schools in farming communities [4]. - The agreement aligns with Côte d'Ivoire's National Strategy for Sustainable Cocoa, ensuring a coordinated approach to address key challenges in the cocoa sector [4]. Group 3: Company Commitment - Hershey emphasizes the importance of collaboration across public and private sectors to improve farmer incomes, highlighting that trust is built through strong, long-lasting relationships [3]. - The company has a long-standing commitment to ethical operations and community support, dating back over 130 years [6].

Core Viewpoint - The Hershey Company is set to announce its third-quarter sales and earnings results on November 7, 2024, followed by a conference call with analysts [1] Group 1 - The earnings results will be released on Thursday, November 7, 2024 [1] - A conference call with analysts is scheduled for 8:30 a.m. ET on the same date [1] - The conference call will be available via a live webcast on the Hershey corporate website [1]

Company Overview - Hershey's stock closed at $187.58, with a slight increase of +0.03% compared to the previous day, underperforming the S&P 500's gain of 0.97% [1] - Over the past month, Hershey's stock has decreased by 7.73%, which is worse than the Consumer Staples sector's loss of 3.52% and the S&P 500's gain of 5.41% [1] Upcoming Earnings - Hershey is expected to report an EPS of $2.71, reflecting a 4.23% increase from the same quarter last year [1] - Revenue is forecasted to be $3.1 billion, indicating a growth of 2.41% compared to the corresponding quarter of the prior year [1] Annual Estimates - For the annual period, the Zacks Consensus Estimates predict earnings of $9.47 per share and revenue of $11.32 billion, representing changes of -1.25% and +1.38% from the previous year, respectively [2] Analyst Revisions - Recent revisions to analyst forecasts for Hershey are important as they reflect near-term business trends, with positive revisions indicating optimism about the company's outlook [2] Zacks Rank and Valuation - Hershey currently holds a Zacks Rank of 4 (Sell), with a 0.36% decrease in the EPS estimate over the last 30 days [3] - The Forward P/E ratio for Hershey is 19.81, which is higher than the industry average of 18.64, indicating that Hershey is trading at a premium [3] - The PEG ratio for Hershey is 5.46, compared to the average PEG ratio of 3.8 for the Food - Confectionery industry [3] Industry Context - The Food - Confectionery industry is part of the Consumer Staples sector and has a Zacks Industry Rank of 103, placing it in the top 41% of over 250 industries [4] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [4]

Core Insights - Hershey Company (HSY) is facing challenges with a high forward price-to-sales (P/S) ratio of 3.35 compared to the industry average of 2.17, indicating high investor expectations for future earnings growth, which may not be sustainable [1] - The company's stock has declined by 1.4% over the past six months, underperforming the industry and broader market indices [1] - A significant decline in North American confectionery net sales by 20.7% in Q2 2024 highlights the impact of reduced consumer spending and changing purchasing habits [2] - Hershey's gross margin has contracted by 200 basis points year over year to 43.2%, primarily due to rising input costs, particularly for cocoa and sugar [4] - Management has revised net sales growth expectations for 2024 down to approximately 2%, with adjusted earnings per share (EPS) projected to decline slightly to a range of $9.49-$9.59 [5] Company Performance - Hershey's stock performance has raised concerns about its ability to meet elevated market expectations, as evidenced by its trailing performance compared to the Zacks Consumer Staples sector and S&P 500 [1] - The convenience channel, a key sales driver for Hershey, has shown notable weakness, impacting overall sales growth [2] - The Ready-to-Eat popcorn category, including Hershey's SkinnyPop brand, is under pressure, with slower growth attributed to changing consumer preferences and increased competition [3] Financial Outlook - The adjusted gross margin is expected to face ongoing challenges due to inflation outpacing pricing actions and productivity improvements [5] - The Zacks Consensus Estimate for HSY's EPS has declined for both the current and next fiscal years, reflecting market concerns [5] - Without a clear catalyst for improvement, Hershey's stock may continue to face downside risks [6]

Core Viewpoint - The Hershey Company has faced significant challenges in the past six months, with a stock price decline of 0.7%, contrasting with the broader industry and S&P 500 performance [1] Financial Performance - Hershey's stock closed at $190.52, down 10.1% from its 52-week high of $211.92, and has fallen below critical technical thresholds [2] - Analysts have revised down the Zacks Consensus Estimate for fiscal 2024 by 0.7% to $9.49 and for fiscal 2025 by 1.1% to $9.32 per share, indicating projected year-over-year earnings declines of 1.04% and 1.83% respectively [3] Market Challenges - The company experienced a 20.7% decline in North American confectionery net sales in Q2 2024, reflecting weakened consumer demand [4] - Rising input costs, particularly for cocoa and sugar, have led to a 200 basis point contraction in adjusted gross margin year-over-year in Q2 [5] Segment Performance - Despite challenges, the confectionery segment has shown resilience with a 2% increase in retail sales in the Candy, Mint & Gum category year-to-date [6] - The North America Salty Snacks segment performed well with 8% retail sales growth in Q2 2024, contributing to a 22-basis point market share gain [7] Innovation and Future Outlook - Hershey's innovation pipeline for the second half of 2024 includes new products expected to drive sales and momentum, particularly in the gummy and sweets segment [8] - The company anticipates mid-single-digit sales growth for the North America Salty Snacks segment in full-year 2024, driven by innovation [7] Investment Considerations - Current pressures from rising input costs and shrinking margins make Hershey's stock less attractive for new investors, although its core business remains strong [9]