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.
Erin Lash, CFA
09:53 AM | Email Article
announced that CEO John Bilbrey, who assumed the top spot in May 2011 and added the chairman role in April 2015, intends to retire in July 2017. The firm refrained from appointing a successor, but Bilbrey will continue to serve as nonexecutive chairman to ensure a smooth transition. While Hershey intends to consider candidates from inside and outside the organization, Executive Vice President and COO Michele Buck strikes us as the most likely internal candidate, given her more than 11 years at the confectionery firm and 25 years in the consumer products space. However, we aren't making any changes to our $105 fair value estimate or our standard stewardship rating based on this news. Shares trade modestly below our valuation and look relatively attractive in an industry where discounts are few and far between.
Erin Lash, CFA, is a director of consumer sector equity research for Morningstar.
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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