Morningstar

Hershey's Change at the Top

Shares of this wide-moat firm trade modestly below our valuation and look relatively attractive in an industry where discounts are few and far between.

Securities In This Article
The Hershey Co
(HSY)

Like its peers, wide-moat Hershey has upped the ante on its efforts to extract costs, targeting $135 million in savings in fiscal 2016 and $100 million each year from fiscal 2017 through fiscal 2019 (up from $50 million to $70 million initially). While we expect a portion of these savings to aid profitability, we think its strategic bent is geared toward utilizing these funds to fuel further brand spend in order to offset intense competitive pressures and drive accelerating top-line gains. From our vantage point, the firm’s focus on bringing on-trend new products to market--spending more than 8% of sales, or $600 million annually, on research, development, and marketing--should ensure that its entrenched relationships with retailers (one facet of its intangible asset moat source) is unwavering. Our long-term outlook, which calls for sales growth to approximate 4%-5% annually and for operating margins to tick up about 300 basis points to 22% by fiscal 2025, remains in place.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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