Morningstar

Why We're Still Sweet on Hershey--and Mondelez, Too

Even without a union, these undervalued wide-moat names are attractive for their leading brands and entrenched relationships.

Securities In This Article
The Hershey Co
(HSY)
Mondelez International Inc Class A
(MDLZ)

Since its initial interest surfaced two months ago,

From a strategic perspective, we haven’t wavered from our stance that a deal could have been advantageous for both firms, affording Mondelez entry into the attractive U.S. chocolate space while also facilitating Hershey’s expansion beyond its home turf. But despite these merits, we weren’t convinced that even a higher price tag would make Hershey amenable to an agreement. Rather, we’ve long thought that the sizable hurdle to a deal was that Hershey is a controlled company, with more than 80% of the voting power held by the Milton Hershey School Trust, which depends on Hershey's dividends to fund its operations. We think this ultimately proved the demise to a tie-up.

Even with this news, we don't intend to change our $48 and $105 fair value estimates for Mondelez and Hershey, respectively. But with shares of both firms trading at a discount to our valuation, and in light of the leading brands and entrenched retail relationships each firm maintains, we think investors should keep shares of both wide moat names on their radar.

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About the Author

Erin Lash, CFA

Sector Director
More from Author

Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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