While there's no doubt that stocks like Hershey's (NYSE:HSY
) have a certain resistance to market forces to them—somewhere, someone wants chocolate and they want it right now—there's also a point to be made where Hershey's can take advantage of some market points to drive itself forward. Recently, Hershey's turned in a deeply exciting earnings report, and RBC Capital Markets took notice of same to give Hershey's a bump up in its projections.
Satisfying RBC's Sweet Tooth
The reports noted that RBC Capital Markets bumped up its projections on the chocolate maker, turning it from “market perform” to “outperform” in the ratings. The biggest reason? The latest earnings reports likely factored in heavily to the decision, as RBC noted that Hershey's recent market gains are likely to be closer to permanent than temporary. The analyst also noted that several of Hershey's major competitors are looking at a variety of negative issues right now, and thus, Hershey's is in a good position to not only take new market share but also hold it.
The latest earnings report out of Hershey's does support such a position; the company saw adjusted earnings per share figures hit $1.49 for the fourth quarter, which was well above consensus estimates of $1.43 per share. Net income was also up against the preceding year's figures, hitting $1.39 per share against the previous year's figure of $0.98 per share.
Sweetening Pool of Analysis
The RBC upgrade actually isn't anything new for the company, based on our latest research, but rather part of an overall pattern of increasing analyst interest that's been going on for the last six months. The company has been rated a “hold” for the last six months, but analysis has grown increasingly bullish throughout that time frame.
Six months ago, the company had one “sell” rating, 13 “hold” and 3 “buy” ratings to its credit. Three months ago, that ratio shifted to one “sell”, 11 “hold” and six “buy”. A month ago, that further shifted to one “sell,” 10 “hold” and seven “buy.” Today, we're currently at one “sell”, eight “hold” and eight “buy.”. If such a pattern holds true, we could see consensus analysis shift to a “buy” recommendation within the next month or so.
The price target, meanwhile, has only been increasing in that time. Six months ago, it stood at $146 even. It increased to $149.20 three months ago, and then a month ago, to $151.07. Today, it stands at $155.07, suggesting ongoing interest. RBC, meanwhile, currently has one of the highest price targets on Hershey's as it is, having recently raised the price target from $157 to $170 per share, along with its increase in ranking.
Greater Than The Sum of Its Parts
While RBC Capital Markets seems to be mainly considering Hershey's future in light of its competitors' failings to keep up, Hershey's has made a lot of inroads in the market for itself thanks to new products as well as some noteworthy new developments.
As it turns out, COVID-19 actually helped Hershey's substantially. Recent reports noted that, in areas where COVID-19 cases were higher than average, so too was the demand for s'mores. At one point, Hershey's was reportedly tracking infection rates to help decide some of its advertising spending. With COVID-19 cases dropping at least somewhat in many places, and both vaccines and therapeutic measures on the rise, the impact of COVID-19 in the future may be somewhat limited for Hershey's. However, that's hardly the only trick in its basket; the company is bringing out new organic products including Organic Reese's and Organic Hershey's Special Dark. This may be somewhat offset in the future, however, as there are also reports that the price of holiday treats may go up with the arrival of the 2021 holiday shopping season, the first price hike since the 2014 holiday season.
Thus we see several factors at work at once in these developments. We see a broader analyst pool putting further weight behind the company, we see a range of new product developments, we see a company taking advantage of market conditions to improve its sales position. We also see a company also potentially shooting itself in the foot by hiking prices on holiday treats, but sometimes price hikes are necessary, especially when costs on raw materials and the like start going up.
All of this adds up to look like a good buy for investors. A range of factors are actively contributing to the notion that RBC recently advanced: the company is likely to be able to hold its gains in market share. That's a very compelling case for anyone looking to buy in on Hershey's, because the alternative would immediately make it a bad deal.
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