Intrinsic value of Hershey Company (The) - HSY

Previous Close

$155.44

  Intrinsic Value

$52.89

stock screener

  Rating & Target

str. sell

-66%

Previous close

$155.44

 
Intrinsic value

$52.89

 
Up/down potential

-66%

 
Rating

str. sell

We calculate the intrinsic value of HSY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 32.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  7,986
  8,205
  8,449
  8,718
  9,011
  9,328
  9,671
  10,039
  10,433
  10,853
  11,301
  11,778
  12,283
  12,820
  13,387
  13,988
  14,622
  15,292
  16,000
  16,746
  17,532
  18,361
  19,233
  20,153
  21,120
  22,138
  23,209
  24,336
  25,521
  26,767
Variable operating expenses, $m
  6,581
  6,753
  6,945
  7,156
  7,386
  7,635
  7,904
  8,193
  8,503
  8,833
  8,877
  9,251
  9,648
  10,070
  10,515
  10,987
  11,486
  12,012
  12,567
  13,153
  13,771
  14,422
  15,108
  15,829
  16,589
  17,389
  18,230
  19,115
  20,046
  21,025
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  6,581
  6,753
  6,945
  7,156
  7,386
  7,635
  7,904
  8,193
  8,503
  8,833
  8,877
  9,251
  9,648
  10,070
  10,515
  10,987
  11,486
  12,012
  12,567
  13,153
  13,771
  14,422
  15,108
  15,829
  16,589
  17,389
  18,230
  19,115
  20,046
  21,025
Operating income, $m
  1,405
  1,452
  1,505
  1,562
  1,625
  1,693
  1,767
  1,846
  1,930
  2,020
  2,424
  2,527
  2,635
  2,750
  2,872
  3,001
  3,137
  3,281
  3,432
  3,592
  3,761
  3,939
  4,126
  4,323
  4,531
  4,749
  4,979
  5,221
  5,475
  5,742
EBITDA, $m
  1,940
  1,993
  2,053
  2,118
  2,189
  2,266
  2,349
  2,439
  2,534
  2,637
  2,745
  2,861
  2,984
  3,114
  3,252
  3,398
  3,552
  3,715
  3,887
  4,068
  4,259
  4,460
  4,672
  4,896
  5,131
  5,378
  5,638
  5,912
  6,200
  6,502
Interest expense (income), $m
  91
  241
  249
  259
  269
  281
  294
  308
  323
  339
  356
  374
  394
  415
  437
  460
  485
  511
  539
  568
  599
  632
  666
  702
  741
  781
  823
  868
  914
  964
  1,015
Earnings before tax, $m
  1,164
  1,203
  1,246
  1,293
  1,344
  1,399
  1,459
  1,523
  1,591
  1,664
  2,050
  2,133
  2,220
  2,313
  2,411
  2,515
  2,625
  2,741
  2,864
  2,993
  3,129
  3,272
  3,423
  3,583
  3,750
  3,926
  4,111
  4,306
  4,511
  4,727
Tax expense, $m
  314
  325
  336
  349
  363
  378
  394
  411
  430
  449
  553
  576
  599
  625
  651
  679
  709
  740
  773
  808
  845
  884
  924
  967
  1,012
  1,060
  1,110
  1,163
  1,218
  1,276
Net income, $m
  850
  878
  910
  944
  981
  1,021
  1,065
  1,112
  1,162
  1,215
  1,496
  1,557
  1,621
  1,689
  1,760
  1,836
  1,917
  2,001
  2,091
  2,185
  2,284
  2,389
  2,499
  2,615
  2,737
  2,866
  3,001
  3,144
  3,293
  3,450

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  7,899
  8,116
  8,358
  8,623
  8,913
  9,227
  9,566
  9,930
  10,319
  10,735
  11,178
  11,650
  12,150
  12,680
  13,242
  13,836
  14,463
  15,126
  15,826
  16,563
  17,341
  18,161
  19,024
  19,933
  20,890
  21,897
  22,957
  24,071
  25,243
  26,476
Adjusted assets (=assets-cash), $m
  7,899
  8,116
  8,358
  8,623
  8,913
  9,227
  9,566
  9,930
  10,319
  10,735
  11,178
  11,650
  12,150
  12,680
  13,242
  13,836
  14,463
  15,126
  15,826
  16,563
  17,341
  18,161
  19,024
  19,933
  20,890
  21,897
  22,957
  24,071
  25,243
  26,476
Revenue / Adjusted assets
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
  1.011
Average production assets, $m
  3,266
  3,356
  3,456
  3,566
  3,685
  3,815
  3,955
  4,106
  4,267
  4,439
  4,622
  4,817
  5,024
  5,243
  5,475
  5,721
  5,981
  6,255
  6,544
  6,849
  7,171
  7,510
  7,866
  8,242
  8,638
  9,054
  9,493
  9,953
  10,438
  10,948
Working capital, $m
  447
  460
  473
  488
  505
  522
  542
  562
  584
  608
  633
  660
  688
  718
  750
  783
  819
  856
  896
  938
  982
  1,028
  1,077
  1,129
  1,183
  1,240
  1,300
  1,363
  1,429
  1,499
Total debt, $m
  4,615
  4,792
  4,990
  5,207
  5,444
  5,701
  5,978
  6,276
  6,594
  6,935
  7,297
  7,683
  8,092
  8,526
  8,985
  9,471
  9,984
  10,526
  11,099
  11,702
  12,338
  13,009
  13,715
  14,459
  15,241
  16,065
  16,932
  17,844
  18,802
  19,810
Total liabilities, $m
  6,461
  6,639
  6,836
  7,054
  7,291
  7,548
  7,825
  8,122
  8,441
  8,781
  9,144
  9,529
  9,939
  10,372
  10,832
  11,317
  11,831
  12,373
  12,945
  13,549
  14,185
  14,856
  15,562
  16,305
  17,088
  17,912
  18,779
  19,690
  20,649
  21,657
Total equity, $m
  1,438
  1,477
  1,521
  1,569
  1,622
  1,679
  1,741
  1,807
  1,878
  1,954
  2,034
  2,120
  2,211
  2,308
  2,410
  2,518
  2,632
  2,753
  2,880
  3,015
  3,156
  3,305
  3,462
  3,628
  3,802
  3,985
  4,178
  4,381
  4,594
  4,819
Total liabilities and equity, $m
  7,899
  8,116
  8,357
  8,623
  8,913
  9,227
  9,566
  9,929
  10,319
  10,735
  11,178
  11,649
  12,150
  12,680
  13,242
  13,835
  14,463
  15,126
  15,825
  16,564
  17,341
  18,161
  19,024
  19,933
  20,890
  21,897
  22,957
  24,071
  25,243
  26,476
Debt-to-equity ratio
  3.210
  3.240
  3.280
  3.320
  3.360
  3.390
  3.430
  3.470
  3.510
  3.550
  3.590
  3.620
  3.660
  3.690
  3.730
  3.760
  3.790
  3.820
  3.850
  3.880
  3.910
  3.940
  3.960
  3.990
  4.010
  4.030
  4.050
  4.070
  4.090
  4.110
Adjusted equity ratio
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  850
  878
  910
  944
  981
  1,021
  1,065
  1,112
  1,162
  1,215
  1,496
  1,557
  1,621
  1,689
  1,760
  1,836
  1,917
  2,001
  2,091
  2,185
  2,284
  2,389
  2,499
  2,615
  2,737
  2,866
  3,001
  3,144
  3,293
  3,450
Depreciation, amort., depletion, $m
  535
  541
  548
  556
  564
  573
  583
  593
  604
  616
  321
  335
  349
  364
  380
  397
  415
  434
  454
  476
  498
  521
  546
  572
  600
  629
  659
  691
  725
  760
Funds from operations, $m
  1,385
  1,419
  1,457
  1,499
  1,545
  1,594
  1,648
  1,705
  1,766
  1,831
  1,817
  1,891
  1,970
  2,053
  2,141
  2,234
  2,332
  2,436
  2,545
  2,660
  2,782
  2,910
  3,045
  3,188
  3,337
  3,495
  3,660
  3,835
  4,018
  4,211
Change in working capital, $m
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
Cash from operations, $m
  1,374
  1,407
  1,444
  1,484
  1,529
  1,577
  1,628
  1,684
  1,744
  1,808
  1,792
  1,865
  1,941
  2,023
  2,109
  2,200
  2,296
  2,398
  2,505
  2,619
  2,738
  2,864
  2,997
  3,136
  3,283
  3,438
  3,600
  3,772
  3,952
  4,141
Maintenance CAPEX, $m
  -221
  -227
  -233
  -240
  -248
  -256
  -265
  -275
  -285
  -296
  -308
  -321
  -335
  -349
  -364
  -380
  -397
  -415
  -434
  -454
  -476
  -498
  -521
  -546
  -572
  -600
  -629
  -659
  -691
  -725
New CAPEX, $m
  -80
  -90
  -100
  -110
  -120
  -130
  -140
  -150
  -161
  -172
  -183
  -195
  -207
  -219
  -232
  -246
  -260
  -274
  -289
  -305
  -322
  -339
  -357
  -376
  -396
  -416
  -438
  -461
  -485
  -510
Cash from investing activities, $m
  -301
  -317
  -333
  -350
  -368
  -386
  -405
  -425
  -446
  -468
  -491
  -516
  -542
  -568
  -596
  -626
  -657
  -689
  -723
  -759
  -798
  -837
  -878
  -922
  -968
  -1,016
  -1,067
  -1,120
  -1,176
  -1,235
Free cash flow, $m
  1,072
  1,090
  1,111
  1,134
  1,161
  1,191
  1,223
  1,259
  1,298
  1,339
  1,301
  1,349
  1,400
  1,454
  1,513
  1,574
  1,639
  1,709
  1,782
  1,859
  1,941
  2,027
  2,118
  2,214
  2,315
  2,421
  2,534
  2,652
  2,776
  2,907
Issuance/(repayment) of debt, $m
  157
  178
  198
  217
  237
  257
  277
  298
  319
  340
  363
  385
  409
  434
  459
  486
  513
  542
  572
  604
  636
  670
  706
  744
  783
  824
  867
  912
  959
  1,008
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  157
  178
  198
  217
  237
  257
  277
  298
  319
  340
  363
  385
  409
  434
  459
  486
  513
  542
  572
  604
  636
  670
  706
  744
  783
  824
  867
  912
  959
  1,008
Total cash flow (excl. dividends), $m
  1,229
  1,268
  1,308
  1,352
  1,398
  1,448
  1,500
  1,557
  1,616
  1,679
  1,663
  1,734
  1,809
  1,888
  1,972
  2,060
  2,153
  2,251
  2,354
  2,463
  2,577
  2,698
  2,824
  2,958
  3,098
  3,245
  3,400
  3,563
  3,735
  3,915
Retained Cash Flow (-), $m
  -39
  -40
  -44
  -48
  -53
  -57
  -62
  -66
  -71
  -76
  -81
  -86
  -91
  -97
  -102
  -108
  -114
  -121
  -127
  -134
  -142
  -149
  -157
  -165
  -174
  -183
  -193
  -203
  -213
  -224
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  1,190
  1,228
  1,264
  1,303
  1,345
  1,390
  1,439
  1,490
  1,545
  1,604
  1,583
  1,648
  1,718
  1,792
  1,870
  1,952
  2,039
  2,130
  2,227
  2,328
  2,436
  2,548
  2,667
  2,792
  2,924
  3,062
  3,207
  3,360
  3,521
  3,690
Discount rate, %
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
  1,109
  1,060
  1,002
  942
  879
  815
  749
  682
  615
  549
  460
  402
  346
  295
  247
  204
  165
  132
  103
  79
  59
  43
  31
  22
  15
  10
  6
  4
  2
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Hershey Company is a producer of chocolate in North America. The Company's principal product offerings include chocolate and non-chocolate confectionery products; gum and mint refreshment products; pantry items, such as baking ingredients and beverages, and snack items, such as spreads, meat snacks, bars and snack bites and mixes. Its segments include North America, and International and Other. The North America segment includes its chocolate and non-chocolate confectionery business, as well as its grocery and snacks business. This includes developing and growing its business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines. The Company distributes and sells confectionery products in export markets of Asia, Latin America, the Middle East, Europe, Africa and other regions. As of December 31, 2016, the Company marketed, sold and distributed its products under more than 80 brand names in approximately 70 countries across the world.

FINANCIAL RATIOS  of  Hershey Company (The) (HSY)

Valuation Ratios
P/E Ratio 45.8
Price to Sales 4.4
Price to Book 42
Price to Tangible Book
Price to Cash Flow 33.6
Price to Free Cash Flow 46.2
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -24.6%
Cap. Spend. - 3 Yr. Gr. Rate -5.2%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 298.7%
Total Debt to Equity 379.1%
Interest Coverage 13
Management Effectiveness
Return On Assets 14.3%
Ret/ On Assets - 3 Yr. Avg. 13.7%
Return On Total Capital 20%
Ret/ On T. Cap. - 3 Yr. Avg. 19.4%
Return On Equity 80.7%
Return On Equity - 3 Yr. Avg. 59.3%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 42.4%
Gross Margin - 3 Yr. Avg. 44.4%
EBITDA Margin 20.1%
EBITDA Margin - 3 Yr. Avg. 19.5%
Operating Margin 16%
Oper. Margin - 3 Yr. Avg. 16%
Pre-Tax Margin 14.8%
Pre-Tax Margin - 3 Yr. Avg. 14.9%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 34.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 69.3%

HSY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSY stock intrinsic value calculation we used $7791 million for the last fiscal year's total revenue generated by Hershey Company (The). The default revenue input number comes from 0001 income statement of Hershey Company (The). You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HSY stock valuation model: a) initial revenue growth rate of 2.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.3%, whose default value for HSY is calculated based on our internal credit rating of Hershey Company (The), is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hershey Company (The).
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HSY stock the variable cost ratio is equal to 82.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HSY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Hershey Company (The).

Corporate tax rate of 27% is the nominal tax rate for Hershey Company (The). In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HSY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HSY are equal to 40.9%.

Life of production assets of 14.4 years is the average useful life of capital assets used in Hershey Company (The) operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HSY is equal to 5.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1398.721 million for Hershey Company (The) - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 208.503 million for Hershey Company (The) is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hershey Company (The) at the current share price and the inputted number of shares is $32.4 billion.

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