DCF Studio

    HSY · NYQ · Consumer Defensive

    The Hershey Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 216.98

    Market price

    USD 169.79

    Implied upside

    +27.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.5% of revenue against depreciation of 3.9%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 216.98+27.8%
    Exit multiple
    USD 271.02+59.6%
    Market price
    USD 169.79

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 12.2bnUSD 12.6bnUSD 13.1bnUSD 13.6bnUSD 14.2bn+3.9%
    EBITUSD 2.5bnUSD 2.6bnUSD 2.7bnUSD 2.8bnUSD 3.0bn+3.9%
    NOPATUSD 2.2bnUSD 2.3bnUSD 2.3bnUSD 2.4bnUSD 2.5bn+3.9%
    Add depreciation & amortisationUSD 479.0mUSD 497.8mUSD 517.3mUSD 537.5mUSD 558.6m+3.9%
    Less capital expenditureUSD -662.8mUSD -688.8mUSD -715.7mUSD -743.8mUSD -772.9m+3.9%
    Less increase in working capitalUSD -210.0mUSD -218.2mUSD -226.8mUSD -235.7mUSD -244.9m+3.9%
    Free cashflow to firmUSD 1.8bnUSD 1.8bnUSD 1.9bnUSD 2.0bnUSD 2.1bn+3.9%
    Discount factor0.96780.90660.84920.79550.7452-
    Present valueUSD 1.7bnUSD 1.7bnUSD 1.6bnUSD 1.6bnUSD 1.5bn-2.7%
    Present Value Of The ForecastUSD 8.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.395Reported 0.097, pulled toward 1.0 (Blume)
    Cost of equity7.17%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 34.1bn85.6% of capital
    Total debtUSD 5.7bn14.4% of capital, book value as a proxy
    Tax rate14.2%Effective, capped at statutory
    WACC6.76%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 216.98

    83% of EV

    Forecast FCFF, final year
    USD 2.1bn
    Capex at depreciation, working capital in reinvestment
    USD 2.5bn
    Less reinvestment at g/ROIC (10.2% of NOPAT)
    USD -257.9m
    Capitalised
    USD 2.3bn
    ROIC (reported)
    24.5%
    Terminal value, undiscounted
    USD 54.7bn
    Terminal value, discounted
    USD 40.8bn
    Enterprise value
    USD 48.9bn
    Less net debt
    USD 4.8bn
    Equity value
    USD 44.1bn

    Exit at 19.8x EBITDA

    Value per shareUSD 271.02

    86% of EV

    Terminal value, undiscounted
    USD 69.5bn
    Terminal value, discounted
    USD 51.8bn
    Enterprise value
    USD 59.9bn
    Less net debt
    USD 4.8bn
    Equity value
    USD 55.1bn

    Spread between methods: 22%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.76%313.85361.58430.39538.28731.96
    5.76%233.96258.65290.88334.72397.92
    6.76%184.53199.07216.98239.61269.14
    7.76%150.95160.23171.24184.53200.90
    8.76%126.66132.92140.15148.61158.65

    Outlined: this model. Green text: above today's price of 169.79. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.9%-1.5%-5.4pp
    EBIT margin20.8%16.9%-3.9pp
    Discount rate6.8%7.8%+1.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.