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Hershey Media Report 11/7/16
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Could Hershey Co Change Direction After Today’s Bearish Options Activity?
Nov 7, 2016 | Frisco Football
Brief mention of the Philadelphia Inquirer in ta list of other recent coverage on the Hershey Company. Relevant portion highlighted below. -
Warming Up To Mondelez
Nov 7, 2016 | Seeking Alpha
By Josh Arnold
Brief mention of the bid for Hershey from Mondelez. Relevant portion highlighted below.
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Could Hershey Co Change Direction After Today’s Bearish Options Activity?
Nov 7, 2016 | Frisco Football
In today’s session Hershey Co (HSY) recorded an unusually high (582) contracts volume of put trades. Someone, most probably a professional was a very active buyer of the November, 2016 put, expecting serious HSY decrease. With 582 contracts traded and 28534 open interest for the Nov, 16 contract, it seems this is a quite bearish bet. The option with symbol: HSY161118P00095000 closed last at: $0.35 or 9.4% up. About 227,357 shares traded hands. Hershey Co (NYSE:HSY) has risen 9.48% since April 5, 2016 and is uptrending. It has outperformed by 7.52% the S&P500.
Out of 15 analysts covering The Hershey Company (NYSE:HSY), 2 rate it a “Buy”, 3 “Sell”, while 10 “Hold”. This means 13% are positive. $105 is the highest target while $82 is the lowest. The $92.70 average target is -8.43% below today’s ($101.23) stock price. The Hershey Company has been the topic of 28 analyst reports since August 5, 2015 according to StockzIntelligence Inc. The firm has “Sector Perform” rating given on Tuesday, January 26 by RBC Capital Markets. The rating was initiated by Bank of America on Tuesday, August 30 with “Underperform”. Argus Research upgraded the shares of HSY in a report on Wednesday, January 20 to “Buy” rating. The stock of Hershey Co (NYSE:HSY) has “Neutral” rating given on Monday, July 11 by Tigress Financial. The stock of Hershey Co (NYSE:HSY) has “Underperform” rating given on Wednesday, April 20 by Bank of America. The firm has “Market Perform” rating by Wells Fargo given on Wednesday, August 5. The stock of Hershey Co (NYSE:HSY) has “Hold” rating given on Monday, October 31 by Stifel Nicolaus. The firm earned “Buy” rating on Thursday, October 27 by Citigroup. Tigress Financial upgraded Hershey Co (NYSE:HSY) on Wednesday, March 9 to “Buy” rating. As per Wednesday, September 16, the company rating was upgraded by JP Morgan.
According to Zacks Investment Research, “The Hershey Company is a leading snack food company and the largest North American manufacturer of quality chocolate and non-chocolate confectionery products. Hershey markets such well-known brands as Hershey’s, Reese’s, Hershey’s Kisses, Kit Kat, Almond Joy, Mounds, York, Jolly Rancher, Twizzlers, and Ice Breakers as well as innovative new products such as Swoops and Hershey’s S’mores. Hershey also offers a variety of snack products to consumers, including Hershey’s Cookies, Mauna Loa macadamia nuts, and Hershey’s Snack Barz.”
Insitutional Activity: The institutional sentiment decreased to 0.85 in Q2 2016. Its down 0.31, from 1.16 in 2016Q1. The ratio dived, as 60 funds sold all Hershey Co shares owned while 233 reduced positions. 74 funds bought stakes while 175 increased positions. They now own 111.39 million shares or 6.18% less from 118.72 million shares in 2016Q1.
Kidder Stephen W holds 2,900 shares or 0.13% of its portfolio. Tci Wealth Advsr owns 694 shares or 0.04% of their US portfolio. Macquarie Gp holds 0% of its portfolio in Hershey Co (NYSE:HSY) for 1,700 shares. Concannon Wealth Limited Liability Co holds 2 shares or 0% of its portfolio. Moreover, Everence Cap Mngmt Incorporated has 0.19% invested in Hershey Co (NYSE:HSY) for 5,314 shares. Balyasny Asset Mgmt Lc last reported 2,931 shares in the company. Nomura Asset owns 66,828 shares or 0.14% of their US portfolio. Oppenheimer, a New York-based fund reported 12,822 shares. Aperio Grp Ltd Liability Com holds 118,926 shares or 0.11% of its portfolio. Haverford Trust, a Pennsylvania-based fund reported 2,215 shares. Boys Arnold owns 1,865 shares or 0.04% of their US portfolio. Thrivent Financial For Lutherans accumulated 0.06% or 117,690 shares. Moreover, Samlyn Capital Llc has 0.5% invested in Hershey Co (NYSE:HSY) for 183,200 shares. Westwood Grp accumulated 200 shares or 0% of the stock. Mizuho Tru Limited holds 233,321 shares or 0.08% of its portfolio.Insider Transactions: Since June 9, 2016, the stock had 0 insider purchases, and 9 insider sales for $5.26 million net activity. 6,448 shares were sold by Idrovo Javier H, worth $644,800 on Friday, October 28. Another trade for 13,568 shares valued at $1.30 million was made by WALLING KEVIN R on Monday, June 13. 1,100 shares were sold by Wege D Michael, worth $106,157. On Thursday, June 30 the insider Buck Michele sold $1.45 million.
The Hershey Company is a producer of chocolate and non-chocolate confectionery. The company has a market cap of $21.45 billion. The Company’s principal confectionery offerings include gum and mint refreshment products; pantry items, such as baking ingredients, toppings and beverages, and snack items, such as spreads, meat snacks, bars, and snack bites and mixes. It has a 32.05 P/E ratio. The Firm operates through two divisions: North America, and International and Other.
HSY Company Profile
The Hershey Company, incorporated on October 24, 1927, is a producer of chocolate and non-chocolate confectionery. The Company’s principal confectionery offerings include gum and mint refreshment products; pantry items, such as baking ingredients, toppings and beverages, and snack items, such as spreads, meat snacks, bars, and snack bites and mixes. The Firm operates through two divisions: North America, and International and Other. The Firm markets, sells and distributes its products under approximately 80 brand names in over 70 countries across the world. The Company’s manufacturing facilities are located in Hershey and Lancaster, Pennsylvania; Monterrey, Mexico, and Stuarts Draft, Virginia. The United States, Canada and Mexico facilities support its North America segment, while the China and Malaysia facilities serve its International and Other segment. The Company’s clients are wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores, concessionaires and department stores.
More recent Hershey Co (NYSE:HSY) news were published by: Philly.com which released: “Hershey Co. CEO Bilbrey to resign; more turmoil at top of rich charity” on October 14, 2016. Also Investorplace.com published the news titled: “Hershey Co (HSY) Stock Looks Sweet After Earnings Beat” on October 28, 2016. Valuewalk.com‘s news article titled: “Hershey Co Rises On Earnings, AbbVie Inc Declines On Sales Miss” with publication date: October 28, 2016 was also an interesting one.
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Nov 7, 2016 | Seeking Alpha
By Josh Arnold
Mondelez (NASDAQ:MDLZ) has been one of my least favorite food and beverage stocks for some time as it has always traded for a stratospheric valuation. This, despite the simple fact that it struggles to grow and has no catalysts in sight for that to end. The stock was near the top of its recent range heading into Q3 earnings and since that time, we've seen shares come in a bit after an initial move higher. After the failed Hershey transaction, what are catalysts for MDLZ to finally move out of its range?
The company's deconsolidated Venezuelan operations had wide-ranging impacts on Q3 results including lower sales and margins. But we knew that would be the case and MDLZ gave us its numbers on an adjusted basis so I'll be using those unless otherwise stated as they give us a much better picture of what is to come than the reported numbers.
Total revenue was down almost 7% but organic sales were actually up 1.1%. That missed consensus of 1.6% organic growth as sales growth decelerated almost everywhere. This is the principal issue I've had with MDLZ all along; productivity boosts are terrific and certainly worthy investments of resources. But you have to have top line growth if your stock trades with a multiple in the twenties and MDLZ just doesn't. This business is too big, too diverse and too widespread to produce any sort of meaningful growth and in Q3, it missed even modest expectations of 1.6% growth. MDLZ is going to hover around the flat line even on an organic basis and that must be taken into account if you're long.
Productivity gains helped send adjusted gross margins up 30bps during Q3 and improved volume and mix contributed as well. MDLZ has been on a long journey of productivity gains with respect to product costs and further down the income statement as well and those efforts have been tremendously successful. I'd expect to see continued gross margin improvements into next year as well but as strong as those efforts have been, let's not forget the gain in Q3 was under 1%. Gross margins were up to 39.9% on an adjusted basis so the 30bps gain amounts to roughly eight tenths of a percent of growth. This is not enough to make up for 1% revenue growth when considering MDLZ' valuation.
Where the magic happens for MDLZ is in G&A costs. The tiny gains made from revenue and gross margin improvements are dwarfed by the 220bps gain in operating margins to 15.8% on an adjusted basis. That's an extraordinary level of growth and it comes from MDLZ' laser focus on cutting costs out of the model. This work has been tremendously successful and I can't say enough for just how good MDLZ has been in this space. This is certainly the primary source of EPS growth for MDLZ going forward so let's take a look at what we may be able to expect next year.
CEO Irene Rosenfeld said she expects operating margins to reach 17% to 18% in 2018 after they hit 15% during Q3. That is a very ambitious goal and it implies that for all the work MDLZ has done already, there is still a tremendous amount of waste in its processes. Another 200bps or so of operating margin expansion would be huge and would represent two-year growth of 11% at the midpoint. That would give MDLZ roughly 5% EPS growth annually from margin expansion and we have a pretty good idea of what the revenue and buyback pictures look like; let's take a stab at the valuation.
Analysts have MDLZ hitting 1.6% sales growth next year, a number that sounds reasonable. I wouldn't be surprised to see MDLZ come in slightly under that because it has struggled to produce even very low levels of growth but even if it misses, there simply isn't that much room to miss. So for the purposes of this exercise, I'll give MDLZ the benefit of the doubt and assume 1.6% sales growth.
We heard from the CEO that margins are going to grow 5% or 6% annually for the next two years so we'll take the midpoint of that and assume 5.5% growth. That leaves the buyback and in the last four quarters, MDLZ has reduced the diluted share count by 3.3%. With the company looking to tender for debt to reduce interest expense, the buyback will likely become less of a priority so if there is some risk in that number, it is to the downside.
If we put all of this together - 1.6% sales growth, 5.5% margin growth and 3% share reduction - we get total EPS expansion next year of 10.1%. That's certainly a nice showing and it is in excess of the 9.2% analysts are calling for. As I said, there is some downside risk in the revenue and buyback numbers so my estimate is in the ballpark of the analyst community. But assuming we see 9% or 10% EPS growth next year, how expensive is MDLZ?
The stock is going for exactly 20 times next year's earnings and given its 10% or so EPS growth, that's not too egregious. MDLZ has caught up to its valuation in the past few quarters so my grievance against the company based solely upon its valuation has somewhat been alleviated. I wouldn't say MDLZ is cheap but at this point, it has traded sideways for so long that it is probably fairly valued. Does that make it a long? That depends on how you feel about the possibility of more choppiness until MDLZ has some sort of catalyst to take it higher. The catalysts we know about - stronger efficiency and operating profits - are already priced in. Thus, I don't think MDLZ is right for me from the long side but it isn't terribly overvalued any longer. With time, perhaps I'll warm up a bit more on MDLZ but for now, I'm content to stay on the sidelines.
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