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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Hershey Co., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 7.88%
01 FCFF0 1,918,763
1 FCFF1 2,109,500 = 1,918,763 × (1 + 9.94%) 1,955,369
2 FCFF2 2,288,117 = 2,109,500 × (1 + 8.47%) 1,965,968
3 FCFF3 2,448,145 = 2,288,117 × (1 + 6.99%) 1,949,774
4 FCFF4 2,583,295 = 2,448,145 × (1 + 5.52%) 1,907,086
5 FCFF5 2,687,844 = 2,583,295 × (1 + 4.05%) 1,839,286
5 Terminal value (TV5) 72,916,689 = 2,687,844 × (1 + 4.05%) ÷ (7.88% – 4.05%) 49,896,751
Intrinsic value of Hershey Co. capital 59,514,233
Less: Debt (fair value) 4,297,300
Intrinsic value of Hershey Co. common stock 55,216,933
 
Intrinsic value of Hershey Co. common stock (per share) $270.05
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.

Weighted Average Cost of Capital (WACC)

Hershey Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 47,755,522 0.92 8.36%
Debt (fair value) 4,297,300 0.08 2.58% = 3.07% × (1 – 16.06%)

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

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 204,467,895 × $233.56
= $47,755,521,556.20

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (14.20% + 17.50% + 14.70% + 16.90% + 17.00%) ÷ 5
= 16.06%

WACC = 7.88%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 140,095 129,846 153,471 152,122 146,858
Net income attributable to The Hershey Company 1,644,817 1,477,512 1,278,708 1,149,692 1,177,562
 
Effective income tax rate (EITR)1 14.20% 17.50% 14.70% 16.90% 17.00%
 
Interest expense, after tax2 120,202 107,123 130,911 126,413 121,892
Add: Dividends, including dividend equivalents 774,972 686,249 640,496 610,245 564,280
Interest expense (after tax) and dividends 895,174 793,372 771,407 736,658 686,172
 
EBIT(1 – EITR)3 1,765,019 1,584,635 1,409,619 1,276,105 1,299,454
 
Short-term debt 693,790 939,423 74,041 32,282 1,197,929
Current portion of long-term debt 753,578 2,844 438,829 703,390 5,387
Long-term portion of long-term debt 3,343,977 4,086,627 4,089,755 3,530,813 3,254,280
Total The Hershey Company stockholders’ equity 3,299,544 2,757,229 2,234,352 1,739,222 1,398,721
Total capital 8,090,889 7,786,123 6,836,977 6,005,707 5,856,317
Financial Ratios
Retention rate (RR)4 0.49 0.50 0.45 0.42 0.47
Return on invested capital (ROIC)5 21.81% 20.35% 20.62% 21.25% 22.19%
Averages
RR 0.47
ROIC 21.24%
 
FCFF growth rate (g)6 9.94%

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).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 140,095 × (1 – 14.20%)
= 120,202

3 EBIT(1 – EITR) = Net income attributable to The Hershey Company + Interest expense, after tax
= 1,644,817 + 120,202
= 1,765,019

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,765,019 – 895,174] ÷ 1,765,019
= 0.49

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,765,019 ÷ 8,090,889
= 21.81%

6 g = RR × ROIC
= 0.47 × 21.24%
= 9.94%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (52,052,822 × 7.88% – 1,918,763) ÷ (52,052,822 + 1,918,763)
= 4.05%

where:

Total capital, fair value0 = current fair value of Hershey Co. debt and equity (US$ in thousands)
FCFF0 = the last year Hershey Co. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Hershey Co. capital

FCFF growth rate (g) forecast

Hershey Co., H-model

Microsoft Excel
Year Value gt
1 g1 9.94%
2 g2 8.47%
3 g3 6.99%
4 g4 5.52%
5 and thereafter g5 4.05%

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)
= 9.94% + (4.05% – 9.94%) × (2 – 1) ÷ (5 – 1)
= 8.47%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.94% + (4.05% – 9.94%) × (3 – 1) ÷ (5 – 1)
= 6.99%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.94% + (4.05% – 9.94%) × (4 – 1) ÷ (5 – 1)
= 5.52%