Hershey Company Annual Valuation – 2015 $HSY

220px-HersheyCoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Hershey Company (HSY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Hershey Company is a provider of chocolate and sugar confectionery. The Company’s principal product groups include chocolate and sugar confectionery products; pantry items, such as baking ingredients, toppings and beverages, and gum and mint refreshment products. It manufactures, markets, sells and distributes its products under more than 80 brand names. The Company markets its products in approximately 70 countries across the world. The Company’s key regions include the North America, including the United States and Canada, and International, including Latin America, Asia, Europe, Africa and exports to these regions. In addition, The Hershey Experience manages its retail operations globally, including Hershey’s Chocolate World Stores in Hershey, Pennsylvania, New York City, Chicago, Shanghai, Niagara Falls (Ontario), Dubai and Singapore. The Company’s two strategic business units are the chocolate business unit and the sweets and refreshment business unit.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $108.62
MG Value $119.15
MG Opinion Fairly Valued
Value Based on 3% Growth $49.16
Value Based on 0% Growth $28.82
Market Implied Growth Rate 11.77%
Net Current Asset Value (NCAV) -$8.22
PEmg 32.04
Current Ratio 1.16
PB Ratio 15.75

Balance Sheet – September 2014

Current Assets $2,533,000,000
Current Liabilities $2,192,000,000
Total Debt $1,560,000,000
Total Assets $5,917,000,000
Intangible Assets $1,110,000,000
Total Liabilities $4,373,000,000
Outstanding Shares 223,900,000

Earnings Per Share

2014 (estimate) $4.01
2013 $3.61
2012 $2.89
2011 $2.74
2010 $2.21
2009 $1.90
2008 $1.36
2007 $0.93
2006 $2.34
2005 $1.97
2004 $2.24

Earnings Per Share – ModernGraham

2014 (estimate) $3.39
2013 $2.94
2012 $2.48
2011 $2.13
2010 $1.80
2009 $1.63

Dividend History


Hershey Company is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.80 in 2010 to an estimated $3.39 for 2014.  This level of growth supports the market’s implied estimate of 11.77% growth, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Hershey Company (HSY) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Hershey Company (HSY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Hershey Company (HSY) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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