Updated on September 24th, 2021 by Bob Ciura
Candy stocks are at a crossroad. On one hand, the industry must adapt to changing consumer preferences toward healthier food choices.Consumers are steadily moving away from center aisle staples, including processed and pre-packaged foods.
On the other hand, many of the well-known candy stocks have exceptional brand names that still lead their portfolios. These brands can continue to generate profits and cash flow that will support the industry’s future of innovation through new products, and acquisitions.
If candy makers can effectively respond to changing consumer preferences, investors could stand to generate sweet returns.
All three stocks on this list pay dividends to shareholders. You can see the entire list of consumer-cyclical stocks here.
You can also download a full list of consumer cyclical stocks (along with important financial metrics like price-to-earnings ratios and dividend yields) by clicking on the link below:
With that in mind, this article will discuss three of the top U.S. candy stocks, including their business models, growth outlooks, and total expected returns.
Table of Contents
In this article we will take a look at the top 3 candy stocks in the Sure Analysis Research Database that have the highest expected returns over the coming five years.
Our top 3 candy stocks are ranked below, according to their 5-year expected total annual returns, in order of lowest to highest.
You can jump to any specific section of the article by clicking on the links below:
- Candy Stock #3: Tootsie Roll Industries (TR)
- Candy Stock #2: The Hershey Company (HSY)
- Candy Stock #1: Mondelez International (MDLZ)
Candy Stock #3: Tootsie Roll Industries (TR)
- 5-year expected annual returns: 1.9%
Tootsie Roll Industries, Inc. traces its roots back to the late 1890’s when its namesake product, the Tootsie Roll, was first created. Today, the company sells a wider variety of candy and gum products. Other well–known brands include DOTS, Junior Mints, Andes, Charms, Blow–Pops, Sugar Daddy, and Dubble Bubble.
Source: Tootsie Roll
Tootsie Roll has a dual class share structure with the Chairwoman and CEO, Ellen R. Gordon owning approximately 53.9% of common stock and 82.8% of Class B shares effectively giving her control of the company. Total revenue in 2020 was about $471M.
Tootsie Roll reported solid Q2 2021 results on July 21, 2021. Net sales were up 44% to $114.6M for the quarter versus $79.8M in the prior year. In the same period, net earnings rose to $9.8M compared to $7.4M. Diluted EPS increased 27% to $0.14 per share from $0.11 on year–over–year basis.
We expect total returns just below 2% per year, as we see the stock as considerably overvalued, which is expected to offset 3% annual earnings-per-share growth and the 1.2% dividend yield.
This expected return is perhaps not so sweet.
Click here to download our most recent Sure Analysis report on TR (preview of page 1 of 3 shown below):
Candy Stock #2: The Hershey Company (HSY)
- 5-year expected annual returns: 2.4%
Hershey needs no introduction. It is arguably the most well-known candy company in the U.S., with a large number of popular brands.
The Hershey Company, founded in 1894, is a chocolate and sugar confectionary products manufacturer that sells major brands such as Hershey’s, Reese’s, Kisses, Cadbury, Ice Breakers, Kit Kat, Almond Joy, Jolly Rancher, Twizzlers, Heath and Milk Duds. Hershey primarily operates in North America but has international operations as well.
Source: Investor Presentation
With multiple top brands, including namesake Hershey, along with Reese’s, Kit Kat and Ice Breakers, it’s not difficult to make a case for Hershey being included as a top candy business.
On July 29th, 2021, Hershey reported Q2 2021 results for the period ending July 4th, 2021. For the quarter the company generated consolidated net sales of $1.989 billion, a 16.5% increase compared to Q2 2020, as away–from–home consumption began to recover.
The North America segment (89%) of sales) saw a 12.3% increase in revenue. Reported net income equaled $301.2 million or $1.45 per share, while adjusted earnings–per–share equaled $1.47 compared to $1.31 in the prior year’s quarter.
We expect 5% annual EPS growth over the next five years for Hershey.
However, shares appear considerably overvalued right now. Even with a 2.1% dividend yield, total returns are estimated at just 2.4% per year over the next five years for Hershey stock.
Click here to download our most recent Sure Analysis report on HSY (preview of page 1 of 3 shown below):
Candy Stock #1: Mondelez International (MDLZ)
- 5-year expected annual returns: 8.9%
Mondelez was formed in 1989 as a result of the merger between Philip Morris and General Foods Corp. The company has undergone a slew of mergers and spinoffs since that time, including its North American grocery business, which was called Kraft Foods. That unit is now part of Kraft Heinz (KHC) and the remainder of the business is what we know as Mondelez today.
The global food processor has more than $26 billion in annual revenue.
Source: Investor Presentation
Mondelez reported Q2 results on 07/27/2021 with a strong rebound in Latin America. For the quarter, net revenue
climbed 12.4% year–over–year, driven by organic revenue growth of 6.2%, favorable currency, and acquisitions.
Revenue increased 31% in Latin America, followed by 17.4% in Asia, Middle East & Africa, and 15.7% year-over-year growth in Europe. Emerging markets generated 16.5% sales growth last quarter. Adjusted earnings per share (“EPS”) rose 8.2% (and 1.6% on a constant currency basis) to $0.66 for the quarter.
We expect Mondelez to grow its EPS by 8% per year over the next five years. Shares are presently overvalued, meaning a declining P/E multiple is expected to slightly reduce annual returns. With a 2.3% dividend yield, total expected returns are estimated at 8.9% per year.
Click here to download our most recent Sure Analysis report on Mondelez International (preview of page 1 of 3 shown below):
Final Thoughts
In short, candy stocks two main problems today. Much like many of its processed food peers, a declining interest in the core product puts into question the future growth rate of the industry.
In addition, the major candy stocks widely trade at above-average valuations. Collectively these two points could make for sour investor returns.
Of course, there are reasons for a positive outlook as well. The well-known candy brands are still very profitable, allowing the companies to fund growth initiatives, whether that means innovating new products, or entering new product categories through acquisitions.
In the meantime, shareholders at least receive solid dividend yields from the major candy stocks. Mondelez International is our top-ranked candy stock right now due to its ~9% expected returns.
