Hershey buy out bid and other fair value estimates

This week Mondelez (MDLZ), the international company know for its Cadbury chocolate, made a $23 Million takeover bid for Hershey (HSY), which came to $107 per share of Hershey stock. Prior to the bid announcement, Hershey had been trading below Moringstar’s fair value estimate of $103 in the $90-$98 range for the past five months. In January Hershey’s stock price dipped, and I was fortunate enough to purchase shares for $84. This week with the Mondelez buyout offer we now have a more accurate value than any discounted cash flow or any other form of company evaluation method can offer (just like real estate real value of your home is what price someone ultimately offers you to buy it). That said, I’m raising the valuation of Hershey from Morningstars $103 to $107–I wouldn’t be surprised if Morningstar raises their valuation as well. The Hershey board has already rejected the Mondelez offer, so it will be interesting to see what the next move will be.

As an income investor I’m interested in the increasing stream of dividend income, so the big price jump (although exciting) just reaffirms that Hershey was undervalued and is now trading at or above its fair value. This will make the wait longer to buy more shares of this great company that I’d prefer to hold forever for the increasing income stream–that is as long as management continues to share the profits with its shareholders.

Here’s the recent Morningstar fair value updates on the other dividend growth stocks that we follow:

Fair Value Increases
ABBV from $65 to $73
CB from $116 to $120
DE from $89 to $95
ITW from $94 to $95
JNJ from $104 to $109
PM from $92 to $95
SJM from $101 to $107

Fair Value Decreases
CNI from $58 to $56
GPS from $38 to $22

Filed in: Company News • Dividend Growth Investing