Key Points
- Rising inflation helped candy companies boost margins as consumers had no problem paying more to get their sugar fix.
- Hershey brands include Hershey chocolate bars, Kit-Kats, Reese’s, Twizzlers, Rolo, and Milk Duds.
- Mondelez showed 13.5% YoY growth in its Q4 2022, but gross profit margins fell (160 bps) due to mark-to-market derivatives weakness.
- Mondelez brands include Cadbury, Toblerone, Sour Patch Kids, Oreos, Triscuit, and Halls.
- 5 stocks we like better than Hershey
Candy stocks have been on fire this year. Sweet tooths worldwide can't seem to get enough sugar in their diets. Candy and snacks are more of a consumer discretionary item within the consumer staples category. But some may argue that you can live on chocolate bars and cookies, diabetes withstanding.
Nonetheless, these stocks have been on a rocket ship ride higher, with many hitting 52-week and all-time highs. The impulse to chase entries should be controlled and wait for pullbacks as valuations are getting lofty as they become a crowded trade. Here are two candy and snack stocks with sweet gains.
Who doesn’t know what a Hersey bar, Kit Kat, or Reese's Peanut Butter Cup is? The company makes and sells chocolates, sweets, and confectionary snacks worldwide. Sweets may be an elastic product, as rising inflation didn't slow down the consumption of chocolate bars. Hershey's recent Q4 2022 earnings beat EPS estimates by $0.25, coming in at $2.02. Revenues rose 14% YoY to $2.65 billion beating $2.58 billion consensus analyst estimates.
Net sales grew 10.7% in constant currency. Inflation worked more as a tailwind for the company as consumers were more than willing to pay higher prices to get their sugar fix. However, what goes up must come down. Inflation deceleration could reverse the upside enjoyed by Hershey.
Full-Year 2023 Forecast
The company guided its full-year 2023 EPS to grow 9% to 11% or $9.29 to $9.46 still candy-crushing $8.94 consensus analyst estimates. The company did temper its forecasts, with a slight decline in volume being offset by price hikes. Its North American Confectionary business is expected to grow in the low single digits.
Its North American Salty Snacks business is expected to grow in the low double-digits reaching $1 billion to $3 billion in sales over the next decade, driven by Skinny Pop and Dots brands. For international business, Hershey expects volume to drive low-single-digit growth over price. Full-year 2023 revenues are expected to rise from 6% to 8%. Bank of America has a Buy rating on HSY with a $260 price target. UBS has a Buy rating with a $269 price target.
HSY Weekly Rectangle Breakout
The weekly candlestick chart on HSY illustrates the weekly rectangle breakout. It started to form from the $238.38 level in October 2022 as shares fell to a swing low of $209.59 by November 2022. Shares chopped within that range between the two flat top and flat bottom trendlines until the weekly market structure low (MSL) breakout through $235.46 occurred in March 2023.
The weekly stochastic fully oscillated through the 80-band but lifted for a high-band mini pup to extend the upside to new all-time highs. Pullback supports are at $241.58, $235.46 weekly MSL trigger, $225.57, and $215.72. The MarketBeat MarketRank™ Forecast gives HSY stock a 2.2 out of 5 stars with a (1.8%) downside price target of $249.73.
Mondelez makes and sells snacks and beverages worldwide. Some of its well-known candy and snack brands include Toblerone, Cadbury, Sour Patch Kids, Trident, Oreos, Chips Ahoy, Ritz, and Triscuit. Mondelez reported EPS of $0.73 versus the $0.70 consensus analyst estimates, beating by $0.03 for its Q4 2022. Revenues grew 13.5% YoY to $8.7 billion beating $8.3 billion analyst estimates. While gross profit grew to $242 million, gross profit margin declined (160 bps) to 35.4%, primarily due to derivatives.
Forecast for 2023
Mondelez expects full-year 2023 guidance Organic Net Revenue growth of 5% to 7% and high single-digit adjusted EPS growth in constant currency. Free cash flow is expected to be over $3.3 billion. Unfavorable FX will net impact revenue growth by (1%) and adjusted EPS by ($0.04). Bank of America has a Buy rating on MDLZ shares with a $77 price target. Despite several price hikes, the company exited 2022 stronger than it began.
Weekly Bull Flag Breakout
MDLZ weekly candlestick chart illustrates the weekly bull flag breakout. Shares surged from a swing low of $54.11 in September 2022 to a peak near $68 in January 2023, forming the flagpole. Shares fell in a parallel channel of lower highs and lower lows to form the flag. The bull flag breakout triggered on the break through $65.80 powered by the weekly stochastic cross up through the 60-band.
The rising weekly 20-period exponential moving average (EMA) support is $65.50. Pullback support levels are at $66.67, $64.96, $62.91, and $57.67 weekly MSL trigger. The MarketBeat MarketRank™ Forecast gives MDLZ stock 2.5 out of 5 stars with a 4.7% upside price target of $73.00.
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