As Foolish investors, we must always be on the prowl for great companies trading at low valuations. Within the consumer goods sector, The Hershey Company (NYSE:HSY) is shining brightly as an opportunity for which we search. It has pulled back just over 5% from its 52-week high, so it is time to dig deeper and see if now is the time to buy. 

Chocolatey Goodness

The Hershey Company is one of the largest producers of chocolate and confectionery products, candy, and gum in the world. It is home to over 80 brands, with Hershey's, Reese's, Kit Kat, Twizzlers, Jolly Rancher, and Ice Breakers being a few of the most popular. 

Right On the Money
On July 25, Hershey announced second quarter earnings; the report told a great story of growth on both the top and bottom lines. Here is an overview of the results:

  • Earnings per share of $0.72 vs. estimates of $0.71
  • Net sales of $1.51 billion matching the consensus estimate
  • Raised quarterly dividend by 15.5%
  • Raised full-year forecast

Earnings per share rose 9.1% and net sales grew 6.7%, while the company expanded its gross margin 390 basis points to 47.6% year-over-year. If this wasn't enough, the company proceeded to raise its quarterly dividend to $0.485 from $0.42 and raised full-year earnings per share expectations to $3.68-$3.71 from $3.61-$3.65. There is little more the company could have done to instill the upmost confidence in its investors. This is what "firing on all cylinders" looks like in the corporate world.

Exquisite Expectations
Analysts believe Hershey will grow at a consistent rate through 2015, but at a slower pace each year. Here are the current consensus estimates:

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  • 2013: 14.5% growth
  • 2014: 10.5% growth
  • 2015: 9.5% growth
The estimates for 2013 seem fair, but given the company's past record and international prospects, I believe the forward estimates are much too low. With an average annual earnings growth of 14.6% from 2009 to 2012, I think a growth of 12-13% in both 2014 and 2015 are much more accurate. I also believe the consensus analyst estimates will be raised after 2013 full-year earnings are released.

Delectable Dividend
On July 25, Hershey announced that it would be paying out its 335th consecutive quarterly dividend, dating its uninterrupted payments back to 1930. This announcement also marked the 4th consecutive year of rewarding its shareholders with a dividend increase; the streak would be much longer had the company not maintained the same dividend in 2008 and 2009 during the financial crisis, but this was simply a smart move by management to ensure stability. I believe as earnings rise over the next several years, management will continue to reward shareholders with dividend increases to maintain a yield of around 2.0 to 2.5%. 

Worldwide Sweet-tooth Satisfiers
Hershey's competitors in the marketplace include Mondelez International (NASDAQ:MDLZ) and Tootsie Roll Industries (NYSE:TR). Mondelez owns many chocolate brands such as Cadbury, Cote d'Or, Suchard, and Milka, while also owning the very popular gum brands Stride and Trident. Tootsie Roll is home to the Tootsie Roll, Tootsie Pops, Blow Pops, Andes, Junior Mints, and Dubble Bubble gum, to name a few. Another very notable competitor is Mars, a private company, who owns brands like M&M's, Snickers, Twix, Dove, Milky Way, and many more of America's favorite treats. Here's a glance at the financials of each company:

Company Hershey Mondelez Tootsie Roll
Market Cap $20.76 billion   $56.63 billion  $1.84 billion
P/E 29.07  24.11  34.97
Forward P/E 22.68   18.49  N/A
Gross Margin  47.6% 37.59%   34.69%
Dividend Yield  2.10% 1.80%   1.00%
YTD Performance  +25.12%  +19.24%  +19.17%

(Source: Yahoo! Finance)

In 2012, NBC published an article naming the top 10 chocolate brands in America from the 52-week period ending March 18, 2012; here is what the list looked like:

Rank Brand Company Unit Sales Dollar Sales
1 Snickers Mars 407,409,600 $424,112,200
2 M&M's Mars 383,687,900 $417,264,000
3 Reese's Hershey 347,164,400 $420,451,700
4 Hershey's Bar Hershey 249,449,600 $261,430,700
5 Kit Kat Hershey 192,127,200 $209,861,000
6 Twix Mars 161,715,900 $193,999,300
7 3 Musketeers Mars 94,410,500 $101,472,500
8 Milky Way Mars 80,053,290 $76,982,430
9 Hershey's Cookies 'n' Creme Hershey 73,445,960 $82,236,820
10 Peter Paul Almond Joy Hershey 60,808,770 $65,632,620

As one can see, Mars and Hershey dominate the U.S. market. Mondelez has many international power brands in its repertoire, but we want to focus on the American market due to ongoing uncertainties elsewhere, like in Europe. Tootsie Roll has performed well year-to-date, but its growth has slowed as of late and is trading at a very high multiple compared to the others. If Mars were public, I would strongly consider an investment if the financials were good, but Hershey is by far the best play for exposure to the U.S. chocolate and sweets industry. 

The Foolish Bottom Line
Hershey is a great American company that is growing at a consistent rate. It has pulled back from its highs and is trading at a low forward multiple, creating a perfect entry point for investors. Keep an eye on this one as I am looking to initiate a position on any further weakness and add to it if it continues lower. 

Joseph Solitro has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.