Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next
Author: qingchang Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 255  
Subject: My thoughts on Hersey Date: 1/25/2007 9:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Hersey
Price: 50.27
PE: 21.09
Dividends 1.08
Div Yield: 2.15%

10-year data:
Year 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
Dividends 0.93 0.84 0.72 0.63 0.58 0.54 0.50 0.46 0.42 0.38
PayoutRatio 47% 36% 41% 43% 78% 45% 31% 39% 38% 43%
Prices:High 67.37 56.75 39.33 39.75 35.08 33.22 32.44 38.19 31.94 25.88
Prices:Low 52.49 37.28 30.35 28.23 27.56 18.88 22.88 29.84 21.06 15.97
P/ERatio:High 34 25 22 27 47 27 20 33 29 29
P/ERatio:Low 26 16 17 19 37 16 14 26 19 18
Div High 1.8% 2.25% 2.37% 2.23% 2.10% 2.86% 2.19% 1.54% 1.99% 2.38%
Div Low 1.4% 1.5% 1.8% 1.58% 1.65% 1.63% 1.67% 1.20% 1.31% 1.47%

PE is going between 14 to over 30. The average in the industry is 26. The PE is now in the average. Dividend yield goes as high as 2.86% in 2000, current 2.15% is close to the high end. In this case, if earning grows at 10% as expected, stock price will go at least at that rate because the dividend yield is already close the high end in the range. I expect 10% growth each year.

Calculate low CAGR by two data points: 1988/6 at $5.7175 and 2000/7 at $21.125, a period of 13 years.
5.7175*(1+x)^13 = 21.125, get x=10.57%

From low price in 2000 18.88 and grows at 10.57%, it should be 34.5 in 2006, 38 in 2007. If use 11.5% CAGR(a 20 year trend), 2000 $18.88 is equivalent of 2007 $40.45. That is the translation of the situation of $18.88 in 2000. That should be an absolutely good price.

Hersey has a history of over 100 years and has increased dividends for xx years. My expectation is Hersey will keep doing so for a long time. The current dividend yield(2.15%) is close to high end. The dividend yield is safe because chocolate and candy business is stable and easy to understand, it is proven in the long history of up and down in economy and culture; it is safe because we are now is the middle of sugar-hate zone. Hersey has 30% of US market. That is a dominant position. The brand and the scale are the moat, because Hersey can afford to charge more than no-brand merchandise and increase price slowly, just like Coke and Bud.

How is the management?
In the time of rising price on cocoa and sugar, management manages to lower SG&A cost to maintain income growth, which shows a good management. I can not judge whether it is wise to cut advertisement.

ROIC is high according to S&P report.

Question: Why account receivable and inventory is rising much more than revenue?
2004 2005 Latest Qtr
Account receivable 408.9 559.3 720.9
Inventory 557.2 610.3 767.8

Sell if PE goes over 32 and dividend yield goes below 1.4%.

Qing
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Berkshire Hathaway

Starting a Small Business
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement