The Hershey Company (NYSE:HSY)’s impressively low beta is a product of its blend of consumer staple products, which perform well in a down economy, and premium products, which perform better in a bolstering economy. The snack food company’s beta is around 0.5 on a 25-year, 10-year and 5-year basis, but we are encouraged by the fact that it is coming closer to zero. On a 3-year basis, Hershey’s beta is 0.4, and over the past year, it has dropped to 0.35. Adding to the defensibility of the stock is its 2.4% dividend yield. Billionaire Jim Simons is one of Hershey's top investors (check out Jim Simons' top picks).
Hershey boasts a strong product portfolio, one that makes it the largest producer of chocolates in the U.S. It is estimated to own over 40% of the market. Boding well for Hershey is its entry into international markets, namely China, India and the Middle East. China alone has one of the most rapidly growing affluent household economies; Hershey’s expects China to become the fifth largest global confectionery market by 2016. The snack company believes that the higher growth rates in emerging and developing markets will help its international business to account for 25% of its total business over the next five years, up from the current share of 10%.
From a valuation standpoint, Hershey currently trades around 22x earnings, which is a 20% discount to the industry average of 28x. Hershey expects its organic sales to grow 5-7% (3%-5% previously) next year and plans to hit $10 billion in net sales by 2017. With these robust growth prospects, we believe that the snack and candy company should at least trade more in line with the industry.
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