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Is The Hershey Company (NYSE:HSY) Worth $109.53 Based On Its Intrinsic Value?

How far off is The Hershey Company (NYSE:HSY) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after February 2018 then I highly recommend you check out the latest calculation for Hershey here.

What’s the value?

I will be using the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. Firstly, I pulled together the analyst consensus forecast of HSY’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 8.49%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of $4,492.9M. Want to understand how I calculated this value? Read our detailed analysis here.

NYSE:HSY Intrinsic Value Feb 1st 18
NYSE:HSY Intrinsic Value Feb 1st 18

The infographic above illustrates how HSY’s earnings are expected to move in the future, which should give you an idea of HSY’s outlook. Then, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes $14,031.1M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is $18,524.0M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $87.92, which, compared to the current share price of $109.53, we see that Hershey is fair value, maybe slightly overvalued at the time of writing.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For HSY, I’ve put together three relevant factors you should further examine:

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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