Candy Maker's Breakout Could Score Traders Another Double-Digit Win

When I first recommended this stock in July 2012, it was trading around $70. It subsequently exceeded my target, rewarding those who traded it along with me with double-digit profits.

Now, shares of North America's largest chocolate maker, The Hershey Company (NYSE: HSY), are trading just under $88, and the stock shows no sign of slowing down. Even at this higher level, I believe it represents a good buying opportunity.

In the short term, a catalyst to move the shares higher should be strong sales of Easter candy. The company -- which also manufactures Twizzlers licorice, Almond Joy chocolate bars, Reese's peanut butter candies, and a host of other sweets -- has released several new products such as Cookies 'n' Cream Easter bunnies in appropriately themed packages. 

Seasonal sales aside, the company appears poised for robust revenue growth. On March 20, management reaffirmed its estimated 5% to 7% revenue growth for 2013. This anticipated increase will be driven by domestic and international expansion, product innovation, the introduction of a new U.S. brand called Brookside, and a longer sales period for seasonal products.

Of these growth drivers, international expansion is the key. Due to increased advertising and product innovation, management projects sales outside North America will account for 15% to 20% of total revenue this year. By the end of 2014, Hershey's expects to bring in over $1 billion from international sales. And it expects overseas sales to comprise at least a quarter of all revenue within five years.

Shareholders certainly seem to believe the company can continue to appreciate. Hershey stock recently hit an all-time high at $87.62.

Hershey Stock Chart

For the past three years, shares have been in a major uptrend. In the latter half of 2012, the stock stalled around the $72 level. From June to November, it was unable to break through this resistance.

However, at the beginning of 2013, the stock finally broke through this level. In doing so, it bullishly completed an ascending triangle pattern, formed by the intersection of $72 resistance, which has become new support, and the major uptrend line.

An accelerated uptrend line has since formed. The stock has risen about 20% since the beginning of January. With no historical resistance in sight, shares should continue to advance.

The bullish technical outlook is supported by strong fundamentals. For the upcoming first quarter of 2013, to be reported April 22, analysts anticipate revenue will increase 6.4% to $1.84 billion from $1.73 billion in the comparable year-ago period. For the full 2013 year, analysts expect strong international growth will drive total revenue up 6.5% to $7.07 billion compared with $6.64 billion last year.

The earnings outlook is also positive. Analysts estimate first-quarter earnings will rise about 8% to $1.04 per share from $0.96 in the year-earlier quarter. Despite planned increases in marketing and advertising costs, analysts expects full-year 2013 earnings will be $3.64 per share, representing about 12% growth from earnings of $3.24 per share last year.

In addition to a strong growth outlook, the company offers a forward annual dividend of about 1.9%, or $1.68 per share.

Risks to consider: Hershey is banking on international growth to drive future revenue and earnings. A global economic slowdown could curtail the company's expansion plans. However, management's growth plan appears well-founded. The company is targeting international expansion in countries with strong GDP growth and growing middle classes with disposable income for confectionary treats.

Recommended Trade Setup:

-- Buy HSY at the market price
-- Set stop-loss at $78.88, below round number support at $80
-- Set initial price target at $102.66 for a potential 17% gain

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