馃崼 HERSHEY COMPANY: DERIVATIVES TRADING 馃崼
The Hershey Company [HSY], together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery, North America Salty Snacks, and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; protein bars; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items comprising spreads, bars, snack bites, mixes, popcorn, and pretzels.
Insights:
- P/S ratio near to 3.5, where 2 is the lowest and 5 the highest
- Price to Book (9.7x) lower than at any other time
- Correlation with SP500 [SPY] of ≈ 35.39%, where their behaviour only could be explained by ≈ 12.5% in the last year [LTM]
- Beta with SP500 [SPY: Benchmark] of ≈ 0.5
- Probabilities of Cocoa futures price could help to a bullish phase [see: https://jjplindex.blogspot.com/2024/03/commodities-probabilities-of.html ]
Based on its last EPS [25/05/24 TTM] of ≈ $10.13 USD and a 23 Forward PER and a sensibility of ± 0.177x annual, a hypothetical spread could be (ceteris paribus):
- High: ≈ $ 274.3 USD
- Neutral: ≈ $ 232.9 USD
- Down: ≈ $ 191.7 USD
Hypothesis
HSY in the next 6 months (perhaps 12), might have a distribution phase above ≈ $274 USD and an accumulation phase below ≈ $191 USD where there is a positive bias due to its cocoa depreciation probabilities and other quantitative parameters.
Hedge plan example:
- Call [sell]: $274 USD
- Call [buy]: $200 USD
- Put [buy]: $191 USD
- Put [sell]: $170 USD
Risks
- Prices higher than $274 for a long time
- Prices lower than $170 for a long time.
- The neutral price of $242 or $180 is not reached at expiration
- Roll over costs (if time is not well estimated)
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2024
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