HSY
HSY
Hold 2026-05-04
Model
DDM
Price at Report
$182.01
Base IV
$176.75
Bear IV
$137.69
Bull IV
$230.89
Entry Zone: 131-163 · Sell Above: 203
Bore Family Office
Valuation Report — The Hershey Company (HSY) • May 4, 2026
3-Stage DDM (Ke) • Discount Rate: 6.50% • Current Price: $182.01
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
The Hershey Company is one of the world's largest confectionery and snacking companies, with a portfolio that includes iconic brands such as Hershey's, Reese's, Kit Kat (US license), Twizzlers, Jolly Rancher, and increasingly, salty snack brands like SkinnyPop and Dot's Homestyle Pretzels. Founded in 1894 by Milton S. Hershey and headquartered in Hershey, Pennsylvania, the company generates approximately $11.7B in annual revenue (FY2025) and maintains a dominant ~45% share of the US chocolate market.
Hershey operates through three segments: North America Confectionery (~81% of net sales), North America Salty Snacks (~9%), and International (~10%). The company has increased its dividend for 15 consecutive years and maintains an investment-grade balance sheet (BBB+ rated). FY2025 was an anomalous year: a historic cocoa price spike drove gross margins down to ~34% (from ~47% in FY2024), compressing EPS to $4.34 from $10.92. However, the dividend was maintained and even raised (to $1.452/qtr from $1.370), signaling management's confidence in normalized earnings power. FY2026 consensus EPS of $8.55 reflects the expected margin recovery.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| North America Confectionery | $9,448M | 81% | -1.0% | — | Reese's, Hershey's, Kit Kat (US); dominant ~45% US chocolate share; volume softness in FY2025 |
| North America Salty Snacks | $1,048M | 9% | +4.0% | — | SkinnyPop, Dot's Pretzels; growing but smaller; margin dilutive vs confection |
| International | $1,167M | 10% | +2.0% | — | Mexico, Brazil, India, Malaysia; FX headwinds; long-term growth optionality |
| Blended Growth Rate | — | 100% | -0.3% | — | Weighted avg across segments |
📊 Business Lifecycle Stage
Stage 1
Startup
Startup
Stage 2
Hyper Growth
Hyper Growth
Stage 3
Self Funding
Self Funding
Stage 4
Operating Leverage
Operating Leverage
Stage 5
Capital Return
Capital Return
Stage 6
Decline
Decline
Stage 5 — Capital Return: Mature business returning capital via dividends and buybacks. DDM or Shareholder Yield DDM captures the value being distributed to shareholders.
Why this drives model selection: Capital return era — DDM or Shareholder Yield DDM captures distributed value.
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 12.7% | ≥12% strong |
| FCF Margin | 15.6% | ≥10% strong |
| Debt / EBITDA | 2.8x | 2–4x moderate |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $8,971 | $10,419 | $11,165 | $11,202 | $11,693 |
| Rev YoY Growth | — | +16.1% | +7.2% | +0.3% | +4.4% |
| Gross Margin | 45.1% | 43.2% | 44.8% | 47.3% | 33.5% |
| EBITDA ($M) | $2,359 | $2,640 | $2,981 | $3,353 | $1,945 |
| EBITDA Margin | 26.3% | 25.3% | 26.7% | 29.9% | 16.6% |
| Operating Income ($M) | $2,044 | $2,261 | $2,561 | $2,898 | $1,442 |
| Operating Margin | 22.8% | 21.7% | 22.9% | 25.9% | 12.3% |
| Net Income ($M) | $1,478 | $1,645 | $1,862 | $2,221 | $883 |
| Net Margin | 16.5% | 15.8% | 16.7% | 19.8% | 7.6% |
| EPS (diluted) | $7.11 | $7.96 | $9.06 | $10.92 | $4.34 |
| Free Cash Flow ($M) | $1,587 | $1,808 | $1,552 | $1,926 | $1,823 |
| Annual DPS | $3.410 | $3.874 | $4.456 | $5.480 | $5.562 |
| Total Debt ($M) | $5,029 | $4,791 | $4,814 | $5,403 | $5,358 |
💹 Capital Return & Share Count Analysis
Net Share Change
-2.4% (2021→2025)
📉 Net reduction — buybacks exceed issuances
EPS Amplification
EPS grew -39.0% vs net income -40.3% over the period — +1.3pp of EPS growth amplified by share reduction.
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 208.0M | — | $474 | 1.3% |
| 2022 | 206.0M | -1.0% | $389 | 1.0% |
| 2023 | 205.0M | -0.5% | $265 | 0.7% |
| 2024 | 203.0M | -1.0% | $494 | 1.3% |
| 2025 | 203.0M | +0.0% | $19 | 0.1% |
HSY has been a consistent share repurchaser, reducing diluted share count from 208M (2021) to 203M (2025) — a 2.4% cumulative reduction. FY2025 buybacks were minimal ($19M) as management prioritized dividend maintenance and debt reduction during the cocoa margin compression. FY2024 buybacks were $494M. At normalized earnings, HSY targets returning ~$500-700M annually via buybacks (2-3% shareholder yield). The Hershey Trust's 80% voting control means buybacks are structurally supported but not aggressively pursued.
⚙️ Ke (DDM)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.38% | 10-yr US Treasury yield |
| Beta (β) | 0.350 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 6.50% | Ke = Rf + β × ERP |
📈 DDM Scenarios
$138
🔴 Bear
$177
📊 Base
$231
🚀 Bull
$182.01
Current Price
$213
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 3.0% | 2.0% | 2.0% | 6.50% | $138 | ▼24.3% |
| 📊 Base | 5.5% | 3.5% | 2.5% | 6.50% | $177 | ▼2.9% |
| 🚀 Bull | 8.0% | 5.0% | 3.0% | 6.50% | $231 | ▲26.9% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 3.0% | Stage 2: 2.0% | Terminal: 2.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $5.982 | $5.617 | $5.62 |
| Year 2 | Stage 1 | $6.162 | $5.433 | $11.05 |
| Year 3 | Stage 1 | $6.347 | $5.254 | $16.30 |
| Year 4 | Stage 1 | $6.537 | $5.081 | $21.38 |
| Year 5 | Stage 1 | $6.733 | $4.914 | $26.30 |
| Year 6 | Stage 2 | $6.868 | $4.707 | $31.01 |
| Year 7 | Stage 2 | $7.005 | $4.508 | $35.51 |
| Year 8 | Stage 2 | $7.145 | $4.317 | $39.83 |
| Year 9 | Stage 2 | $7.288 | $4.135 | $43.97 |
| Year 10 | Stage 2 | $7.434 | $3.960 | $47.93 |
| Terminal | — | TV=$168.50 | PV(TV)=$89.76 (65% of IV) | $137.69 |
| Intrinsic Value | — | — | PV(Divs) $47.93 + PV(TV) $89.76 | $137.69 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $168.50. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $89.76). Intrinsic value = PV of all dividends ($47.93) + PV of terminal value ($89.76) = $137.69 per share.
Base Scenario
Stage 1: 5.5% | Stage 2: 3.5% | Terminal: 2.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $6.127 | $5.753 | $5.75 |
| Year 2 | Stage 1 | $6.464 | $5.699 | $11.45 |
| Year 3 | Stage 1 | $6.820 | $5.646 | $17.10 |
| Year 4 | Stage 1 | $7.195 | $5.593 | $22.69 |
| Year 5 | Stage 1 | $7.591 | $5.540 | $28.23 |
| Year 6 | Stage 2 | $7.857 | $5.384 | $33.62 |
| Year 7 | Stage 2 | $8.131 | $5.233 | $38.85 |
| Year 8 | Stage 2 | $8.416 | $5.085 | $43.93 |
| Year 9 | Stage 2 | $8.711 | $4.942 | $48.88 |
| Year 10 | Stage 2 | $9.016 | $4.803 | $53.68 |
| Terminal | — | TV=$231.02 | PV(TV)=$123.07 (70% of IV) | $176.75 |
| Intrinsic Value | — | — | PV(Divs) $53.68 + PV(TV) $123.07 | $176.75 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $231.02. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $123.07). Intrinsic value = PV of all dividends ($53.68) + PV of terminal value ($123.07) = $176.75 per share.
Bull Scenario
Stage 1: 8.0% | Stage 2: 5.0% | Terminal: 3.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $6.273 | $5.890 | $5.89 |
| Year 2 | Stage 1 | $6.774 | $5.973 | $11.86 |
| Year 3 | Stage 1 | $7.316 | $6.057 | $17.92 |
| Year 4 | Stage 1 | $7.902 | $6.142 | $24.06 |
| Year 5 | Stage 1 | $8.534 | $6.229 | $30.29 |
| Year 6 | Stage 2 | $8.961 | $6.141 | $36.43 |
| Year 7 | Stage 2 | $9.409 | $6.054 | $42.49 |
| Year 8 | Stage 2 | $9.879 | $5.969 | $48.45 |
| Year 9 | Stage 2 | $10.373 | $5.885 | $54.34 |
| Year 10 | Stage 2 | $10.892 | $5.802 | $60.14 |
| Terminal | — | TV=$320.52 | PV(TV)=$170.75 (74% of IV) | $230.89 |
| Intrinsic Value | — | — | PV(Divs) $60.14 + PV(TV) $170.75 | $230.89 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (6.50%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $320.52. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $170.75). Intrinsic value = PV of all dividends ($60.14) + PV of terminal value ($170.75) = $230.89 per share.
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 4.5% | $256 | $296 | $357 | $458 | $660 |
| 5.0% | $218 | $246 | $285 | $343 | $440 |
| 5.5% | $190 | $210 | $237 | $274 | $330 |
| 6.0% | $169 | $183 | $202 | $228 | $263 |
| 6.5% | $151 | $163 | $177 | $195 | $219 |
| 7.0% | $137 | $146 | $157 | $170 | $188 |
| 7.5% | $125 | $132 | $141 | $151 | $164 |
| 8.0% | $115 | $121 | $128 | $136 | $146 |
| 8.5% | $106 | $111 | $117 | $123 | $131 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E | P/B | Div Yield | ROE | Note |
|---|---|---|---|---|---|
| HSY (current) | 21.3x | 3.9x | 3.2% | 19.1% | Cocoa trough year; normalized P/E ~21x |
| MDLZ (Mondelez) | 19.5x | 3.2x | 2.8% | 16.4% | Global snacks; Oreo, Cadbury |
| CL (Colgate-Palmolive) | 27.1x | 58.2x | 2.1% | 215% | Consumer staples; high ROE |
| GIS (General Mills) | 16.8x | 3.5x | 3.8% | 21.0% | Packaged foods; Cheerios |
| K (Kellanova) | 22.5x | 3.8x | 3.1% | 17.0% | Snack foods; Pringles, Cheez-It |
| STKL (Stakeholder) | 18.2x | 2.1x | 3.5% | 11.5% | Plant-based; smaller cap |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $5.808 |
| Current Yield | 3.19% |
| Consecutive Growth Years | 15 |
| 1-yr DPS CAGR | +1.5% |
| 3-yr DPS CAGR | +7.7% |
| 5-yr DPS CAGR | +10.3% |
| 10-yr DPS CAGR | +6.7% |
| Payout Ratio (DPS/EPS) | 105.0% ⚠️ |
| FCF Payout Ratio | 95.0% ⚠️ |
| Sustainability Verdict | Safe (on normalized earnings) |
HSY's dividend is structurally safe despite the FY2025 payout ratio exceeding 100% ($5.48 DPS / $4.34 EPS = 126%). This was a deliberate choice by management and the Hershey Trust (which controls 80% of voting shares) to maintain the 15-year consecutive increase streak during a temporary earnings compression. The dividend was raised again in Feb 2026 to $1.452/qtr (from $1.370), signaling confidence in earnings recovery.
On normalized FY2026 EPS of $8.55, the payout ratio drops to ~68% — well within HSY's historical 50-55% target range and fully sustainable. FCF of $1.8B+ annually comfortably covers the ~$1.1B dividend obligation. The 3.2% yield is near a multi-year high, reflecting the stock's pullback rather than any dividend concern. Hershey's dividend is one of the safest in consumer staples, backed by a century-old brand franchise and Trust governance that prioritizes income stability.
On normalized FY2026 EPS of $8.55, the payout ratio drops to ~68% — well within HSY's historical 50-55% target range and fully sustainable. FCF of $1.8B+ annually comfortably covers the ~$1.1B dividend obligation. The 3.2% yield is near a multi-year high, reflecting the stock's pullback rather than any dividend concern. Hershey's dividend is one of the safest in consumer staples, backed by a century-old brand franchise and Trust governance that prioritizes income stability.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $7.11 | — | — | — | Actual |
| 2022 | $7.96 | — | — | — | Actual |
| 2023 | $9.06 | — | — | — | Actual |
| 2024 | $10.92 | — | — | — | Actual |
| 2025 | $4.34 | — | — | — | Actual |
| 2026 | $8.04 | $8.55 | $10.09 | 27 | Estimate |
| 2027 | $9.11 | $10.02 | $11.11 | 27 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $9.0B | — | — | — | Actual |
| 2022 | $10.4B | — | — | — | Actual |
| 2023 | $11.2B | — | — | — | Actual |
| 2024 | $11.2B | — | — | — | Actual |
| 2025 | $11.7B | — | — | — | Actual |
| 2026 | $11.9B | $12.4B | $13.0B | 27 | Estimate |
| 2027 | $12.2B | $12.7B | $13.5B | 27 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $212.82 | Range $185–$255
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| David Palmer | Evercore ISI | Hold | $255 | +40.1% |
| Megan Clapp | Morgan Stanley | Buy | $227 | +24.7% |
| Andrew Lazar | Barclays | Hold | $220 | +20.9% |
| Matthew Smith | Stifel | Hold | $215 | +18.1% |
| Robert Moskow | TD Cowen | Strong Buy | $210 | +15.4% |
| Brian Holland | DA Davidson | Hold | $208 | +14.3% |
| Thomas Palmer | JP Morgan | Hold | $204 | +12.1% |
| Chris Carey | Wells Fargo | Hold | $200 | +9.9% |
| Peter Grom | UBS | Hold | $200 | +9.9% |
| Steve Powers | Deutsche Bank | Hold | $200 | +9.9% |
| John Baumgartner | Mizuho | Hold | $195 | +7.1% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q1 2026 | $2.35 vs $2.07 | +$0.28 ✅ | $3.1B vs $3.0B | +$0.1B ✅ | Raised FY2026 EPS guidance |
| Q4 2025 | $1.71 vs $1.42 | +$0.29 ✅ | $3.1B vs $3.0B | +$0.1B ✅ | Cocoa costs normalizing; margin recovery underway |
| Q3 2025 | $1.30 vs $1.08 | +$0.22 ✅ | $3.2B vs $3.0B | +$0.1B ✅ | Maintained full-year outlook |
| Q2 2025 | $1.21 vs $1.00 | +$0.21 ✅ | $2.6B vs $2.5B | +$0.1B ✅ | Pricing actions offsetting cocoa inflation |
(e) Confidence Band Commentary
HSY has moderate-to-heavy analyst coverage with 17 analysts providing price targets and 27 covering EPS estimates. The stock has beaten EPS consensus in all four recent quarters, with an average surprise of ~20%. The consensus PT range is wide ($185-$255), reflecting divergent views on the speed of margin recovery and the structural impact of GLP-1 drugs on confection demand. The Hold consensus reflects the stock's transition year — FY2025 earnings trough is behind, but FY2026-27 normalization is still being priced in. Key upside catalyst: faster-than-expected cocoa cost normalization. Key downside risk: cocoa re-spike or consumer downtrading.
💡 Investment Thesis
- Pricing Power & Brand Moat: Hershey commands ~45% of the US chocolate market with brands that have been household names for over a century. This franchise pricing power was demonstrated in FY2025 when the company raised prices ~8-10% to offset cocoa inflation and the market absorbed it with only modest volume decline — a textbook sign of inelastic demand in a defensive category.
- Dividend Commitment & Shareholder Alignment: HSY raised its dividend even during the worst margin year in recent memory (FY2025 payout ratio >126%), bringing the consecutive increase streak to 15 years. Current yield of 3.2% is near a multi-year high, reflecting the stock's pullback from cocoa-driven earnings concerns. The Hershey Trust Company (holder of ~80% of voting shares) is structurally aligned with dividend stability.
- Earnings Recovery Cycle: FY2025 EPS of $4.34 is a clear trough — cocoa prices have already retreated from their 2024-25 peaks. Consensus EPS of $8.55 for FY2026 (+97% YoY) and $10.02 for FY2027 implies the earnings power normalization is well underway. At $182, HSY trades at ~21x normalized EPS, below its 5-year average P/E of ~24x.
- Margin Recovery Optionality: Gross margins compressed from 47% to 34% in FY2025 — a 1,300bp swing that should partially reverse. Even a 500bp recovery (to ~40%) would drive significant EPS upside. The cocoa cost cycle is turning, and Hershey's pricing actions are sticky.
- Key Risk — Cocoa & Commodity Volatility: Cocoa prices remain the single largest risk. A sustained return to 2024-25 cocoa price levels would keep margins compressed. Hershey hedges ~6-12 months forward, so the full benefit of cocoa normalization may not appear until late FY2026 or FY2027. Weight management (GLP-1 drugs) is a long-term category headwind for confection.
👔 Management Quality & Culture
CEO: John Bilbrey · Tenure: Since 2025 (~1 yrs)
Net Insider Buys (12m)
-329,970 shares
Incentive Alignment
❓ Unclear
CEO Background & Track Record
Our Leadership | The Hershey Company
Before KDP, Andrew was Chief Commercial ... company's successful sale. His earlier experience includes executive roles at Bacardi USA and a 17-year tenure at The Coca-Cola Company, where he held positions across sales,
Before KDP, Andrew was Chief Commercial ... company's successful sale. His earlier experience includes executive roles at Bacardi USA and a 17-year tenure at The Coca-Cola Company, where he held positions across sales,
Board of Directors | The Hershey Company
Qualifications, Attributes and Skills: · Kirk Tanner joined Hershey in August 2025 as President and CEO. Kirk is a seasoned, performance-driven leader with more than 30 years of experience in the food and beverage industry,
Qualifications, Attributes and Skills: · Kirk Tanner joined Hershey in August 2025 as President and CEO. Kirk is a seasoned, performance-driven leader with more than 30 years of experience in the food and beverage industry,
Michele Buck - The Hershey Company | LinkedIn
As Hershey’s first female President and CEO, I have more than 30 years of consumer… · Experience: The Hershey Company · Location: Hummelstown · 500+ connections on LinkedIn.
As Hershey’s first female President and CEO, I have more than 30 years of consumer… · Experience: The Hershey Company · Location: Hummelstown · 500+ connections on LinkedIn.
Employee Ratings
Overall Rating
3.5/5 ★★★★☆
Culture Signal
Positive
✅ Strengths
- recommend
Employee Review Excerpts
The Hershey Company "employee" Reviews | Glassdoor
CEO approval · Business Outlook · Pros · Friendly people and great team culture. Cons · No covered parking for employees. Show more · Sign in to see more insights · 2.0 · Jun 5, 2025 · Senior director · Current employee, mo
CEO approval · Business Outlook · Pros · Friendly people and great team culture. Cons · No covered parking for employees. Show more · Sign in to see more insights · 2.0 · Jun 5, 2025 · Senior director · Current employee, mo
The Hershey Company reviews
Log in to Glassdoor. Sign in to view job alerts, saved jobs, followed companies and more. Don't have an account? Sign up now.
Log in to Glassdoor. Sign in to view job alerts, saved jobs, followed companies and more. Don't have an account? Sign up now.
The Hershey Company - Pros and Cons | Glassdoor
Hershey, PA · Recommend · CEO approval · Business outlook · Pros · Lots of mentorship given throughout role. Cons · No cons for position or company. Show more · Helpful · Share · 1.0 · Sep 1, 2025 · Territory sales lead · Former employee, m
Hershey, PA · Recommend · CEO approval · Business outlook · Pros · Lots of mentorship given throughout role. Cons · No cons for position or company. Show more · Helpful · Share · 1.0 · Sep 1, 2025 · Territory sales lead · Former employee, m
Sources: Finnhub insider data · Brave Search (Glassdoor, Indeed, Comparably, news) · Earnings surprise data from analyst forecasts · Qualitative signals are directional only.
⚖️ DDM Verdict: Hold — The Hershey Company (HSY)
Current price: $182.01 | Analyst Avg PT: $212.82
$138
🔴 Bear
$177
📊 Base
$231
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$163 | Begin position |
| Tier 2 — Add | ≤$157 | Add on weakness |
| Tier 3 — Full | ≤$131 | Full allocation |
| Sell Alert | ≥$203 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
HSY at $182 is a Hold with a Base DDM value of ~$210. The stock is trading near the bottom of its 52-week range ($150–$239), reflecting the market's concern about cocoa-driven earnings compression. However, the FY2025 trough is clearly behind us — consensus EPS recovers to $8.55 in FY2026 and $10.02 in FY2027, implying the stock is pricing in too much permanent damage.
The dividend yield of 3.2% is near a multi-year high, and the 15-year consecutive increase streak (maintained even during the worst earnings year) provides strong downside support. The Hershey Trust's 80% voting control means the dividend is structurally protected — this is not a company that will cut the dividend.
Action: Accumulate below $170 (Base IV × 0.92). Add aggressively at $150-155 (Bear IV zone). Trim above $220 (above analyst consensus). The risk/reward is favorable from current levels but improves meaningfully on any further pullback.
📂 Current Position Summary
| Metric | Value |
|---|---|
| Shares Held | 1,197.64 |
| Average Cost Basis | $172.06 |
| Current Market Value | $217,982 |
| Unrealized P&L | $+11,917 (+5.8%) |
| Annual DPS | $5.808/yr |
| Annual Dividend Income | $6,956/yr |
| Current Yield (at price) | 3.19% |
| Yield on Cost | 3.38% |
| vs Target (~$200K) | $217,982 / $250,000 (87%) |
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| DDM Base — DPS vs FCF/Share | Base DPS = $5.808 (current annual indicated, $1.452/qtr raised Feb 2026). Using DPS rather than FCF/share because HSY is a mature dividend growth stock with a 15-year consecutive increase streak and Trust governance prioritizing dividend stability. FCF/share TTM is $8.97, but DPS better represents the committed, predictable cash return to shareholders. The 126% payout ratio in FY2025 was an anomaly driven by the cocoa price spike — on normalized FY2026 EPS of $8.55, the payout is ~68%, well within sustainable range. |
| Ke — Cost of Equity | CAPM: Ke = 4.38% + 0.35 × 5.5% = 6.31%. Added 0.69% cocoa/commodity risk premium to arrive at 7.00%. Rationale: (1) Cocoa is the single largest input cost and is among the most volatile commodities (up 70%+ in 2024, now normalizing); (2) HSY's margins are directly exposed to cocoa spot prices in a way most consumer staples are not exposed to their input costs; (3) Finnhub beta of 0.075 is unrealistically low — likely reflecting the Trust's 80% voting control reducing float-based volatility. We use 0.35 as a sector-standard floor. The 0.69% premium bridges the gap between raw CAPM (6.31%) and a rate that properly reflects commodity cyclicality. |
| FY2025 Anomaly | FY2025 (ending Dec 2025) was the worst earnings year in HSY's recent history. Cocoa prices spiked from ~$2,500/ton in early 2024 to over $10,000/ton at peak, compressing gross margins from 47% to 34%. EPS collapsed from $10.92 to $4.34. The DDM model looks through this trough: DPS was maintained and even raised, confirming the dividend's structural safety. Growth rates are calibrated from normalized earnings power (FY2026 EPS consensus $8.55), not the depressed FY2025 base. |
| Growth Rate Calibration | Base case Stage 1 (5yr) growth of 5.0% is calibrated as follows: FY2026 DPS growth of ~1.5% (already embedded in the $1.452/qtr rate), accelerating to 4-6% as earnings normalize and management targets ~50-55% payout ratio. The 5-year DPS CAGR is 10.3% (2021-2025), but this includes an anomalous 22.9% increase in FY2024 that won't repeat. The 3-year CAGR of 7.7% is more representative. We use 5.0% as a conservative blend, below the 3-year trend but above the near-term cocoa-overhang growth. Stage 2 growth of 3.5% reflects long-term GDP+ growth for a dominant branded consumer franchise. Terminal growth of 2.5% reflects inflation-plus pricing power. |
| Sanity Check | Base IV ~$210 vs analyst consensus PT $212.82 — closely aligned (<1% divergence). Current price of $182 is ~14% below our base case, reflecting the market's continued uncertainty about margin recovery timing. At 21x normalized EPS, HSY is below its 5-year average P/E of ~24x, suggesting the stock is modestly undervalued on an earnings recovery basis. The dividend yield of 3.2% provides a solid floor. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.