Hershey shares fell by -1.1% during the day's afternoon session, and are now trading at a price of $191.15. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Hershey Is Fairly Priced to Earnings but Overpriced Compared to Its Book Value:
The Hershey Company, together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 22.08 and an average price to book (P/B) ratio of 3.05. In contrast, Hershey has a trailing 12 month P/E ratio of 18.9 and a P/B ratio of 9.41.
Hershey's PEG ratio is 10.23, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Wider Gross Margins Than the Industry Average of 27.12%:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $7,791 | $7,986 | $8,150 | $8,971 | $10,419 | $11,165 |
| Gross Margins | 46% | 45% | 45% | 45% | 43% | 45% |
| Net Margins | 15% | 14% | 16% | 16% | 16% | 17% |
| Net Income (M) | $1,178 | $1,150 | $1,279 | $1,478 | $1,645 | $1,862 |
| Net Interest Expense (M) | -$139 | -$144 | -$149 | -$127 | -$138 | -$152 |
| Depreciation & Amort. (M) | $295 | $292 | $295 | $315 | $379 | $420 |
| Diluted Shares (M) | 210 | 209 | 210 | 207 | 205 | 204 |
| Earnings Per Share | $1.6 | $5.46 | $6.11 | $7.11 | $7.96 | $9.06 |
| EPS Growth | n/a | 241.25% | 11.9% | 16.37% | 11.95% | 13.82% |
| Avg. Price | $90.45 | $124.09 | $134.99 | $163.47 | $206.36 | $191.15 |
| P/E Ratio | 56.53 | 22.73 | 22.09 | 22.99 | 25.92 | 21.1 |
| Free Cash Flow (M) | $1,271 | $1,446 | $1,258 | $1,587 | $1,808 | $1,552 |
| CAPEX (M) | $329 | $318 | $442 | $496 | $519 | $771 |
| EV / EBITDA | 11.31 | 15.69 | 15.26 | 15.95 | 17.42 | 14.32 |
| Total Debt (M) | $3,260 | $4,234 | $4,529 | $4,089 | $4,098 | $4,094 |
| Net Debt / EBITDA | 1.39 | 1.98 | 1.63 | 1.59 | 1.38 | 1.24 |
| Current Ratio | 0.93 | 1.05 | 1.57 | 0.9 | 0.8 | 0.97 |
Hershey benefits from growing revenues and increasing reinvestment in the business, exceptional EPS growth, and wider gross margins than its peer group. The company's financial statements show generally positive cash flows and healthy leverage levels. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.97.
