The firm said the producer of chocolate in North America and provider in chocolate and sugar confectionery "has been on a multi-year beat-and-raise cycle on the back of above trend North American chocolate gains, productivity realization and cost relief. Investors have been rewarded with strong earnings growth and rerating."
"We believe this cycle is ending and see risk to expectations and an inflated valuation. We continue to view HSY as a best-in-breed company, but see downside risk for a stock seemingly priced for perfection," Goldman said.
The firm pointed put out that Hershey is trading near all-time highs and near peak valuation, "yet, in our view, is on the cusp of a negative expectation recalibration."
Goldman lowered their FY14-FY16 EPS estimates by 3%-6% to reflect lower sales and margin expectations.
TheStreet Ratings team rates HERSHEY CO as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate HERSHEY CO (HSY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HSY's revenue growth has slightly outpaced the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 11.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HERSHEY CO has improved earnings per share by 24.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HERSHEY CO increased its bottom line by earning $3.61 versus $2.89 in the prior year. This year, the market expects an improvement in earnings ($4.13 versus $3.61).
- 46.49% is the gross profit margin for HERSHEY CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.51% trails the industry average.
- Net operating cash flow has increased to $564.69 million or 15.49% when compared to the same quarter last year. Despite an increase in cash flow, HERSHEY CO's cash flow growth rate is still lower than the industry average growth rate of 49.25%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: HSY Ratings Report