Stock Analysis on Net
Stock Analysis on Net

Hershey Co. (NYSE:HSY)

This company has been moved to the archive! The financial data has not been updated since July 27, 2023.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Hershey Co., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 8.05%
01 FCFE0 1,557,982
1 FCFE1 2,052,970 = 1,557,982 × (1 + 31.77%) 1,900,053
2 FCFE2 2,565,944 = 2,052,970 × (1 + 24.99%) 2,197,927
3 FCFE3 3,033,016 = 2,565,944 × (1 + 18.20%) 2,404,496
4 FCFE4 3,379,344 = 3,033,016 × (1 + 11.42%) 2,479,504
5 FCFE5 3,535,958 = 3,379,344 × (1 + 4.63%) 2,401,168
5 Terminal value (TV5) 108,384,760 = 3,535,958 × (1 + 4.63%) ÷ (8.05% – 4.63%) 73,601,008
Intrinsic value of Hershey Co. common stock 84,984,157
 
Intrinsic value of Hershey Co. common stock (per share) $415.64
Current share price $233.56

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.78%
Systematic risk of Hershey Co. common stock βHSY 0.37
 
Required rate of return on Hershey Co. common stock3 rHSY 8.05%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rHSY = RF + βHSY [E(RM) – RF]
= 4.68% + 0.37 [13.78% – 4.68%]
= 8.05%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Hershey Co., PRAT model

Microsoft Excel
Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in thousands)
Dividends, including dividend equivalents 774,972 686,249 640,496 610,245 564,280
Net income attributable to The Hershey Company 1,644,817 1,477,512 1,278,708 1,149,692 1,177,562
Net sales 10,419,294 8,971,337 8,149,719 7,986,252 7,791,069
Total assets 10,948,820 10,412,231 9,131,845 8,140,395 7,703,020
Total The Hershey Company stockholders’ equity 3,299,544 2,757,229 2,234,352 1,739,222 1,398,721
Financial Ratios
Retention rate1 0.53 0.54 0.50 0.47 0.52
Profit margin2 15.79% 16.47% 15.69% 14.40% 15.11%
Asset turnover3 0.95 0.86 0.89 0.98 1.01
Financial leverage4 3.32 3.78 4.09 4.68 5.51
Averages
Retention rate 0.51
Profit margin 15.49%
Asset turnover 0.94
Financial leverage 4.27
 
FCFE growth rate (g)5 31.77%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

1 Retention rate = (Net income attributable to The Hershey Company – Dividends, including dividend equivalents) ÷ Net income attributable to The Hershey Company
= (1,644,817 – 774,972) ÷ 1,644,817
= 0.53

2 Profit margin = 100 × Net income attributable to The Hershey Company ÷ Net sales
= 100 × 1,644,817 ÷ 10,419,294
= 15.79%

3 Asset turnover = Net sales ÷ Total assets
= 10,419,294 ÷ 10,948,820
= 0.95

4 Financial leverage = Total assets ÷ Total The Hershey Company stockholders’ equity
= 10,948,820 ÷ 3,299,544
= 3.32

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.51 × 15.49% × 0.94 × 4.27
= 31.77%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (47,755,522 × 8.05% – 1,557,982) ÷ (47,755,522 + 1,557,982)
= 4.63%

where:
Equity market value0 = current market value of Hershey Co. common stock (US$ in thousands)
FCFE0 = the last year Hershey Co. free cash flow to equity (US$ in thousands)
r = required rate of return on Hershey Co. common stock

FCFE growth rate (g) forecast

Hershey Co., H-model

Microsoft Excel
Year Value gt
1 g1 31.77%
2 g2 24.99%
3 g3 18.20%
4 g4 11.42%
5 and thereafter g5 4.63%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 31.77% + (4.63% – 31.77%) × (2 – 1) ÷ (5 – 1)
= 24.99%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 31.77% + (4.63% – 31.77%) × (3 – 1) ÷ (5 – 1)
= 18.20%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 31.77% + (4.63% – 31.77%) × (4 – 1) ÷ (5 – 1)
= 11.42%