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+--- Thread: the value of hsy (/showthread.php?tid=1315)
the value of hsy - Joey Batz - 08-27-2015
Hey guys, I'm just wondering what people think of HSY at its current price.
I love the business and bought this perpetually overpriced stock over a year ago at $103 (I had no idea about value investing, just buying dividend stocks). It's down 15% at $88 and seems to be swinging back and forth between that and $90.
My question for everyone is if it's worth averaging down on the company. It's a wonderful company that I would love to own more of, but that doesn't mean the price is right. I don't do DDM analysis because I am terrible at it (Jason Fieber of Dividend Mantra valued it at $92), but I tend go by a P/E under 20 rule, and right now the company is at a P/E of 34. That's terribly expensive.
I'm sort of at a crossroads here. It's a great company, but while I'd be averaging down about 15%, that's only because I bought it at a high price because I didn't know what I was doing. I wonder if this is as low as HSY gets. It seems to be perpetually expensive (chocolate bars aren't exactly something that people HAVE to stop buying during a recession, unlike cars and computers). I also do not have a lot of money to invest; the next time I'll likely have available capital to throw into the fold will be likely in about four months time, so what I do right now is what I do right now. I fear that by the next time I have available capital, HSY will be back up to what it was.
Any advice you guys can give would be great. I'm just curious what everyone here thinks about HSY's value. Thanks!
RE: the value of hsy - hendi_alex - 08-27-2015
I can only speak to what I try to do. First, my initial buys would only be made if a stock was in what appeared to be 'value' range, as to me, there is no reason to chase price when there are always so many choices that represent value. Once purchased, if everything remains sound, ie. no serious red flags develop, then accumulation takes place until the desired target weighting is achieved. Once the target weighting is in place, additional purchases would take place averaging down at widely spaced increments of maybe 10% in order to preserve the weighting.
For you, if you still like HSY, and you started with your desired weighting, that would mean that it is probably past time for an incremental buy. If wising to increase the weighting, then this is certainly a better time to do that than was the case with your initial buy. I'm a little bothered by HSY's high pay out ratio. Also would love to see more cash on hand for a company of their market cap. Am further put off by their historically high P/E ratio. That is just from glancing at Yahoo stats and with only superficial knowledge of the company.
Personally I wouldn't consider HSY above about $55-$60. However, I'm not a typical DG investor, and my entry price will not likely come before a major market contraction hits. Still, I'm just not impressed with chasing after stocks with p/e of over 14 or so of any mature company. IMO the bargains will come, and it is better to just accumulate cash to take advantage when the big drops arrive or either focus on some sector that is presenting historically good value in the current market.
RE: the value of hsy - EricL - 08-27-2015
Currently doing research on a consumer staples Top 10 list, and I am showing analyst estimates of $4.14 in earnings in 2015, which would be a PE of 21.5. According to FAST Graphs, I peg "fair value" for HSY at a 22 PE, meaning shares are trading at a slight discount.
Analysts are projecting 5YR EPS growth of 8.7% and the company is targeting long term EPS growth of 9-11%. The company also has a targeted payout ratio of 50%, which is slightly below the current 51.7% payout ratio based on 2015 estimates and the current dividend rate.
So over the next 5 years I'd expect dividend growth in 8-9% range, which isn't bad with a 2.4% yield.
In all, I wouldn't consider it a screaming buy here, but it seems to be at a reasonable place to add to your position.
RE: the value of hsy - Kerim - 08-27-2015
I have trouble getting as excited about HSY as others. I agree it is a great business, and I of course love their products. But I'd need to see a huge price drop to consider getting in.
I'm skeptical of HSY's guidance and analyst expectations for 2015. It is a problem that I complain about a lot with respect to earnings, but those $4 estimates are on an "adjusted" basis. HSY's reported Q2 EPs was a LOSS of 47 cents per share -- a far cry from the "adjusted" POSITIVE 78 cents they claimed. The difference between those two numbers was explained this way in the Q2 presentation:
Quote:Additionally, the company performed an initial assessment of the fair value of the Shanghai Golden Monkey (SGM) business as a result of several contributing factors. Thus far in 2015, SGM net sales and profitability have been significantly lower than initial expectations. In addition, as part of the ongoing integration process, the company has continued to assess the quality of SGM’s accounts receivable and existing distributor networks. As a result of this assessment, the company has recorded an initial non-cash goodwill impairment charge of $249.8 million, or $1.13 per share-diluted. The company expects to finalize its valuation assessment in the third quarter of 2015 and additional charges, including charges related to other long-lived assets, may be required.
Again, great company. But I think the 2015 earnings numbers are soft, and as a result, the payout ratio is a lot higher than it looks at the moment. With the general market swoon of late, I'd say there are much better bargains out there at the moment.
RE: the value of hsy - EricL - 08-27-2015
(08-27-2015, 09:26 AM)Kerim Wrote: Again, great company. But I think the 2015 earnings numbers are soft, and as a result, the payout ratio is a lot higher than it looks at the moment. With the general market swoon of late, I'd say there are much better bargains out there at the moment.
But if it's a one time issue, I don't really consider its impact regarding payout ratio. Management is guiding for dividends of 50% of earnings going forward. Those charges are in the past or even in the current year, I don't know that they have any implications going forward do they? Are these charges going to continue in out years?
RE: the value of hsy - hendi_alex - 08-27-2015
Problem is that most companies most always have quarterly entries that are categorized as 'one time issues'. I think that HSY will remain a great long term company, but am not convinced that value is very good at this time.
RE: the value of hsy - Kerim - 08-27-2015
(08-27-2015, 09:53 AM)EricL Wrote: But if it's a one time issue, I don't really consider its impact regarding payout ratio. Management is guiding for dividends of 50% of earnings going forward. Those charges are in the past or even in the current year, I don't know that they have any implications going forward do they? Are these charges going to continue in out years?
Fair point, Eric. I guess I'm just tired of earnings being so inscrutable.
RE: the value of hsy - Dash - 08-31-2015
Love HSY....how can you not love peanut butter cups?
It's one of those tricky catch-22 companies. On the one hand you don't want to buy it when it's overvalued; on the other hand, it's rarely undervalued. To me there are two choices for getting into HSY:
Choice 1: Build a sizable cash position, specifically allotted for companies like HSY. Buy during major market corrections, crashes, etc.
Choice 2: Dollar cost average every month. Set it and forget it by DRIP-ing.
If you believe HSY will continue its consistent successes over the next 10+ years, DRIP into it.
If you believe HSY will still be an excellent company but perhaps not with the same rate of sales growth, go with choice 1.