Better Buy: Mondelez vs. Hershey

 The Hershey Company (HSY) manufactures and sells confectionery products and pantry items internationally. The company operates through three segments: North America Confectionery; North America Salty Snacks; and International. On the other hand, Mondelez International, Inc. (MDLZ) manufactures, markets, and sells snack food and beverage products. It provides biscuits, chocolates, candies, cheese, and powdered beverage products.

Amid the ongoing Russia-Ukraine war, the cost of food in the United States increased by 10.1% in May 2022, according to the U.S. Bureau of Labor Statistics. The critical reasons for rising food prices are supply chain disruptions, heavy demand for food commodities, and high energy prices. As these factors are expected to keep driving food prices in the near term, the food industry is expected to thrive. According to Valuates Reports, the global packaged food market is expected to grow at a CAGR of 5.2% by 2030. Therefore, both HSY and MDLZ should benefit.

HSY has gained 6.9% year-to-date, while MDLZ has negative returns. Also, HSY’s 10.2% gains over the past six months compared to MDLZ’s negative returns. Moreover, HSY is the clear winner with 18.5% gains versus MDLZ’s negative returns in terms of the past nine months’ performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On May 20, 2022, HSY announced the opening of its new R&D Center in Johor, Malaysia. The investment is a core part of the company's strategy to drive international growth through innovation. Herjit Bhalla, HSY’s Vice President, AEMEA & India, said, "The facility will act as a central hub for the company's operations across the AEMEA region within countries in the Asia Pacific including India and China, Europe, the Middle East, and Africa."

On May 18, 2022, MDLZ’s Board of Directors declared a regular quarterly dividend of $0.35 per share of Class A common stock. This dividend is payable on July 14, 2022, to shareholders of record as of the close of business on June 30, 2022.

Recent Financial Results

HSY’s revenues increased 16.1% year-over-year to $2.67 billion for the fiscal first quarter ended April 3, 2022. The company’s adjusted operating profit grew 27.4% year-over-year to $707.89 million, while its adjusted net income came in at $523.47 million representing a 30.7% year-over-year increase. Also, its adjusted EPS came in at $2.53, up 31.8% year-over-year.

MDLZ’s revenues increased 43.8% year-over-year to $7.76 billion for the fiscal first quarter ended March 31, 2022. The company’s adjusted operating income grew 6.7% year-over-year to $1.38 billion, while its adjusted net earnings came in at $1.17 billion, representing a 4% year-over-year increase. Also, its adjusted EPS came in at $0.84, up 6.3% year-over-year.

Past and Expected Financial Performance

HSY’s revenue and EPS grew at CAGRs of 6% and 13.1%, respectively, over the past three years. Analysts expect HSY’s revenue to increase 20.6% for the quarter ending June 30, 2022, and 11.1% in fiscal 2022. The company’s EPS is expected to grow 14.3% for the quarter ending June 30, 2022, and 12% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 9.5% per annum over the next five years.

On the other hand, MDLZ’s revenue and EPS grew at CAGRs of 4.4% and 9.9%, respectively, over the past three years. The company’s revenue is expected to increase 5.3% for the quarter ending June 30, 2022, and 3.9% in fiscal 2022. Its EPS is expected to decline 1.5% for the quarter ending June 30, 2022, but grow 5.7% in fiscal 2022. Also, MDLZ’s EPS is expected to grow at a rate of 6.9% per annum over the next five years.

Profitability

MDLZ’s trailing-12-month revenue is 3.13 times what HSY generates. However, HSY is more profitable, with a gross profit margin and net income margin of 45.46% and 17.29% compared to MDLZ’s 38.69% and 14.34%, respectively.

Furthermore, HSY’s ROE, ROA, and ROTC of 62.52%, 14.07%, and 18.19% are higher than MDLZ’s 15.20%, 4.65%, and 6.52%, respectively.

Valuation

In terms of forward non-GAAP PEG, MDLZ is currently trading at 3.28x, 26.1% higher than HSY’s 2.60x. However, HSY’s forward EV/EBITDA ratio of 18.59x is 11.6% higher than MDLZ’s 16.66x.

POWR Ratings

HSY has a B overall rating, equating to a Buy in our proprietary POWR Ratings system. On the other hand, MDLZ has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

HSY has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, MDLZ has a C grade for Growth, in sync with analysts’ expectations that its EPS will decline in the near term.

Moreover, HSY has a grade of A for Quality. This is justified given HSY's 62.46% trailing-12-month ROCE, 411.9% higher than the industry average of 12.20%. In contrast, MDLZ has a Quality grade of B.

Of the 86 stocks in the Food Makers industry, HSY is ranked #21. In comparison, MDLZ is ranked #30.

Beyond what I’ve stated above, we have also rated these stocks for Value, Momentum, Stability, and Sentiment. Click here to view all the HSY ratings. Also, get all the MDLZ ratings here.

The Winner

The food maker industry is expected to benefit exponentially amid ongoing food shortages. While both HSY and MDLZ are expected to gain, it is better to bet on HSY now because of its higher profit margin and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Food Makers industry here.

MDLZ shares were trading at $59.04 per share on Wednesday afternoon, up $0.57 (+0.97%). Year-to-date, MDLZ has declined -10.47%, versus a -19.91% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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