HERSHEY CO (HSY) stock intrinsic value fair value estimate & owner earnings analysis

Hershey makes chocolate and candy (Hershey's, Reese's, Kit Kat in the U.S., Jolly Rancher, Twizzlers, Ice Breakers) and, since 2018, a growing salty-snack business (SkinnyPop, Dot's Homestyle Pretzels, Pirates Booty, LesserEvil, acquired November 2025 for $815 million). About 27% of its sales go through one distributor, McLane Company, which serves U.S. convenience and drug stores. Its earning power comes from brands that have led U.S. chocolate for more than a century and the ability that gives it to raise prices when costs rise. Cash earnings. We measure what the owners could take out each year: operating cash flow, less stock pay, less the spending needed to keep the plants and systems up to date, with working-capital swings removed. Per diluted share this rose from $3.35 in 2016 to $6.11 in 2019, $7.94 in 2022 and $8.35 in 2025. Two judgement calls matter. First, Hershey bought renewable-energy tax credits through partnership investments ($257-$285 million a year in 2022-2024); the tax savings show up in operating cash flow, so we charge the yearly write-down of those investments as a cost. That program wound down in 2025, which is why the tax rate jumped from 10.2% to 27.3%; 2025 is therefore a clean, full-tax year. Second, reported net income fell 60% in 2025, to $883 million, because cocoa and other commodities cost $737 million more, tariffs and supply-chain costs rose $287 million, and the company booked $491 million of paper losses on cocoa hedges that it holds for future purchases. Those hedge gains and losses swing back and forth (a $514 million paper gain in 2024 became a loss in 2025), so we count the cash, not the paper swing. Cash earnings held up in 2025 partly because capital spending fell from $606 million to $455 million after a large systems and capacity program finished, and partly because $122 million of taxes were deferred. Starting level. We value the business before its lenders and then subtract the debt. Adding back interest paid, cash earnings per share were $7.45 (2021), $8.58 (2022), $8.37 (2023), $8.96 (2024) and $9.31 (2025). We use the middle of those five years, $8.58, because the 2021 snack acquisitions created the business as it stands today. Cash earnings grew 3.9% in 2025; our base case assumes 3.5% in the first year. The first half of 2026 supports that: sales rose 8.7% to $5.89 billion, gross margin recovered to 42.2% from 32.1%, and operating cash flow was $888 million versus $509 million a year earlier. Debt. Hershey owes $5.19 billion of long-term debt (including $504 million due within a year) and $422 million of short-term borrowings, against $791 million of cash, of which we treat about $491 million as surplus. Much of the long-term debt carries low fixed rates, and at the end of 2025 its market value was $312 million below its face value; we count it at market value. Net debt is about $4.81 billion, or $23.64 per share. Cash earnings of roughly $1.75 billion a year cover the roughly $200 million interest bill many times over, so refinancing is not a concern in any case. Base case ($162.74 per share). Cash earnings start at $8.58, grow 3.5% in year one and then 2% a year through year 20, in line with Hershey's long record of passing cost increases through in price. After that we assume no further growth in dollar terms. The business is worth about $37.9 billion, it owes $4.8 billion, and the shares are worth about $33.1 billion. We give no credit for future acquisitions, share-buyback effects, market-share gains or margins above recent levels. Intangible amortization of about $85 million a year mostly reflects customer relationships at acquired snack brands, and the modest growth path already allows for some of that fading. Bear case ($114.17 per share). Another cocoa or tariff squeeze arrives before price increases can catch up, as in 2025, and cash earnings fall to $7.45 (the 2021 level) for two years. They then recover only to $8.37 (the 2023 level) and stay flat in dollars for good, as the volume losses seen in 2024 (down 2%) and 2025 (down 1%) offset price increases. The business is worth about $28.0 billion, less $4.8 billion of debt, leaving $23.2 billion for shareholders. Bull case ($207.05 per share). Cash earnings return to 2025's $9.31 in the first year, as the 2026 results so far suggest, then grow 4% a year for nine years and 2.5% a year to year 20. That pace is below the 6.3% a year that total cash earnings actually grew from 2017 to 2025, a figure that includes acquisitions. The business is worth about $46.9 billion, less $4.8 billion of debt, or $42.1 billion for shareholders. Change since our previous estimate. In August 2026 we estimated $67.53, $135.84 and $207.43. Back then the lower cases were discounted at higher rates to reflect risk. We now use one consistent rate and express risk only through what happens to the business in each case. We also credit less growth: 2% a year in the base case instead of 5.5%. The net effect is a much higher low case, a higher middle case and a similar high case. What would make this wrong: cocoa prices staying near their 2024-2025 records after today's hedges run out, combined with consumers resisting further price increases; faster volume losses in the core U.S. candy business, where Hershey's market share slipped about 0.1 percentage point in 2025; or a change in terms with McLane.