Hershey a Good Buy for Mother's Day

May 6, 2009

If there's one thing women like, it's chocolate. So no matter what she says, mom will probably appreciate a nicely-packaged sampling of the sweet morsels for Mother's Day.

More important to investors, though, is that the sale of chocolates is among the luxuries people are reluctant to sacrifice during a time of recession. A recent New York Times article noted that "As unemployment has risen…Americans have been consuming growing volumes of candy."

It's not surprising. Even in the depths of the depression, chocolate-lovers delivered enough profits to Hershey (HSY) that the company was able to finance its own work program for the unemployed.

Hershey and Other Chocolatiers Up in Economic Downturn

Indeed, many chocolatiers seem to be doing well during this current economic downturn. Cadbury (CBY) reported sales up 7% for the year, with operating profits jumping up 30%. Nestle saw revenues increase by almost 11% in the fourth quarter, while Hershey grew sales by 6.5% and earnings by 8.5%, seeping past analysts' expectations.

The best chocolate-maker to buy now is Hershey. Hershey, which has traditionally targeted the lower-priced segment of the chocolate market, recently introduced its own premium labels to compete with the Ghirardelli and Godiva brands. This is important, because these premium brands are now staples on the shelves of the discount retailers, such as Target and Wal-Mart.

Hershey reported a first quarter earnings increase of 20%, over the 2008 first quarter results, greatly exceeding expectations. Though cautious regarding the balance of the year, the company still projects sales and earnings growth for the year.

In addition to strong operating results, Hershey could potentially be an acquisition target for a large company, such as Nestle. The trust that owns Hershey has explored a sale several times in the last few years. Acquiring Hershey would make Nestle the largest U.S. chocolate-maker.

I rate HSY a B. It's a good buy.

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