Hershey (HSY)

Total return at 5 years: 3.7%/year = -0.5% appreciation + 4.1% dividend. The target price ($160) is ex-dividend; the $34 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $155 · Multiples $158) is below the market price ($164).

Today — expensive, no margin of safety: at $164 trades ~3.8% above its value discounted to today (~$158); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($160) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$102.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($164) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (7.3%/year) is in line with our base case (6.0%/year) → the price is consistent with the projection.

That growth implies ~$1.5 bn of owner earnings in year 5 (vs ~$1.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta normalizada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended Jun 28, 2026 (revenue of US$12,164 million). The margin normalization was computed on the TTM ended Mar 29, 2026: the reported operating margin for that window (14.3%) is depressed by non-recurring 2025 charges (mark-to-market loss on cocoa hedges, tariffs, goodwill impairment and restructuring); it is normalized to 16% by adding back the portion of those charges falling within the TTM window. The revenue path starts at 4.5% (base case), below the reported TTM's 11.5%: that jump mostly reflects the pass-through of the July 2025 pricing action against an easy comparison base, while organic volume in the core segment (North America confectionery) is already negative (-2%); it is anchored to the average of the 3-year trajectory (7.2%/0.3%/4.4%) rather than the TTM peak, so as not to credit in advance a margin and volume recovery that is not yet holding. The margin recovers gradually from 16% (TTM) to 22% (year 5) as the pricing action fully annualizes and cocoa costs (although down from all-time highs, still structurally elevated) stabilize, without returning to the historical peak of 25.9% (FY2024) because of the declared moat erosion. The tax rate uses the effective rate from XBRL (27.3%); interest is derived from TTM EBIT less TTM pre-tax income from XBRL (~$230M). No net buybacks are modeled (TTM buybacks are barely 0.18% of market capitalization, well below the method's materiality floor) and there is no relevant dilution.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $160 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $164, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $160 in 5 years plus $34 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $158. Against the current market price ($164), the margin of safety is -3.8% (trades above the maximum → a premium is paid) and the total return at that price would be 3.7% annually.

• Multiple on normalized earnings. 16× P/E base on normalized net income, within the staple consumer band.
• GAAP earnings depressed. TTM GAAP earnings do not reflect normalized cash generation capacity.
• Price versus margin recovery. Current market price requires sustained margin recovery to justify expected return.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (114%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. Evaluated on real invested capital from the balance sheet (equity + debt − cash).
• Cash generation. FCF (OCF minus capex) holds better than GAAP earnings because 2025 charges were mostly non-cash or hedge-related.
• Margin under pressure. TTM operating margin (14.3%) is the lowest in the past four years, well below FY2024 peak of 25.9%.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Segment revenue is reported in the segment note of the 10-K and sums exactly to consolidated. The volume and price dynamics behind each segment, disclosed in the MD&A: North America Confectionery combined -2% volume with +6% price (the July 2025 pricing action); North America Salty Snacks combined +8% volume with +1% price; International combined -1% volume, +3% price, and approximately -3% adverse foreign exchange.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (28-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Growth driven by price. FY2025 4.4% is almost entirely price; core segment volume is already negative.
• Salty snacks in double-digits. The fastest-growing segment (~12% approx.) is still only ~11% of the business.
• International in decline. Fell from an approximately 3% adverse foreign exchange headwind in Mexico and Brazil.

• Recognized brands. Portfolio of more than 85 iconic brands with broad consumer acceptance.
• Customer concentration. Approximately 27% of 2025 net sales realized to a single distributor, McLane.
• Volatile critical input. Cocoa, sourced 70% from West Africa, is structurally elevated and volatile.
• Diversification into salty snacks. SkinnyPop, Dot's Homestyle Pretzels, and LesserEvil diversify away from pure chocolate.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)7.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 114% of ROIC
• !Value creation (ROIC − 10% bar)+4pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Manageable debt. Total debt approximately $5,190M, with cash of $791M.
• Elevated dividend payout. TTM dividend paid runs at approximately 100% of TTM reported net income, leaving little room.
• Capex in line with guidance. TTM capex is in line with the company's 2026 guidance of $425-475M.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• New leadership. CEO as of August 2025 with no prior chocolate industry experience — execution to be proven.
• Dual-class share structure. Common and Class B stock with separate dividends, typical of a company with historical controlling shareholder.
• Capital allocation. Dividend absorbs the bulk of capital returned to shareholders; buyback was zero under pre-approved programs in FY2025.

• Non-recurring charges (mark-to-market cocoa hedge loss, tariffs, and restructuring charges) crushed 2025 GAAP earnings, depressing the apparent multiple without reflecting normalized cash generation capacity.
• The cocoa cost shock hit the entire confectionery industry at once, and the market punishes the worst quarter rather than anticipating margin recovery that the July 2025 pricing action is only beginning to show.
• Leadership change (new CEO as of August 2025, outside the chocolate industry) generated additional uncertainty over execution.

The gap is not unambiguous: already-negative core segment volume is a real signal that the market could be right, not simply overreacting. The case requires close watch of whether price elasticity stabilizes or deepens.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-23% total): the margin of safety protects the downside. The bull (+10%/year, +59% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Price elasticity. Core segment volume declined 2% following the July 2025 price increase.
• Structural cocoa cost. Cocoa remains structurally elevated despite falling from historic highs.
• Channel concentration. 27% of 2025 net sales to a single distributor (McLane).
• EU deforestation regulation. Effective December 2026, requires extensive due diligence on cocoa to sell into the EU.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 5.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 14% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 7%, in line with our 6%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 7% vs our 6%: coherent, but at the optimistic end of the range.