As a long-time holder of Hershey shares, I have enjoyed the company’s outstanding long-term growth, but I have become concerned about the correction which has caused HSY to underperform the S&P for almost two years now. Recent earnings announcements have been disappointing. The stock price is near 52-week lows, threatening the trendline on the long-term chart. Is it time to sell HSY and invest the money elsewhere? After mulling this over for several months, I’ve decided to continue holding the shares.
I believe one of two scenarios will develop: earnings will turn out to be better than expected due to a surge in candy buying during the holiday season, and the stock price will recover; or if the sag in earnings and the share price continues, Hershey is likely to become a takeover candidate. I view Kraft Foods (KFT) as a likely suitor and I would expect a bid for HSY in the range of $60 to $65 per share next year. (I own KFT as well as HSY.)
The following quotations from Kraft’s website reveal their interest in expanding their position in the global chocolate business: “When you talk about Kraft Foods’ international confectionery business, you are talking first and foremost about chocolate. With a powerful portfolio of world famous brands, we are the third largest seller of chocolates globally –leading the way in Latin America and a strong number two in Europe. . . . Although our chocolates already enjoy market-leading positions in 15 countries, we continue to develop new products that will grow to be tomorrow’s global favorites. Chocolate products introduced in the past two years now represent approximately 11% of our total confectionery sales volume, triple the level of only a few years ago.”