Hershey Co (HSY), Lazard Ltd (LAZ), Tiffany & Co. (TIF): Three Contrarian Ideas You Should Take a Look At

Hershey Co (NYSE:HSY), which is the largest North American manufacturer of quality confectionery products, is expanding margins primarily due to strong consumer demand for chocolate, favorable commodity cost changes and pricing power. Everyone agrees with what I just stated and, moreover, many are sure about the company’s ability to reinvest in advertising while growing its bottom line (12%-15% EPS growth).

Where I disagree with most analysts

I believe that the incipient Hershey Co (NYSE:HSY) China business and the recently acquired Brookside Farms brand will give the company huge upside to consensus estimates (EPS and top line). I think the China business can grow to $500 million by 2017 from $90 million currently.

Hershey Co (NYSE:HSY) trades at 2013 23.5 times P/E. The company sells at a 30% valuation premium to its food peers. This premium may sound high, but it is actually justified by the company’s revenue growth rate, which is significantly higher than its peers at 5% to 7%.

Betting on market share gains

According to consensus, Lazard Ltd (NYSE:LAZ) might be a long-term market share gainer across both its asset management and financial advisory franchises. Every analyst in the industry knows about Lazard Ltd (NYSE:LAZ)’s current expense plan, its continued solid execution at the asset management arm and the company’s good progress in the M&A up-cycle.

Where I disagree with most analysts

The market is under-appreciating Lazard Ltd (NYSE:LAZ)’s asset management franchise and the bank’s ability to improve margins up to +25% through the completion of a $135 – $145 million expense savings program.

I think that Lazard Ltd (NYSE:LAZ)’s 2013 19 times P/E multiple is supported by an ROE that I expect to be around 33% and an ROA that I would expect at 7%.

Always glittering diamonds.

Most analysts expect Tiffany & Co. (NYSE:TIF) to keep on doing well. As a matter of fact, most expect the company to continue gaining share across all of its markets. That said, many do not seem to expect high top line growth to be sustainable.

Hershey Co (HSY), Lazard Ltd (LAZ), Tiffany & Co. (TIF): Three Contrarian Ideas You Should Take a Look At

Published on June 28, 2013 at 9:21 am by The Motley Fool in News

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