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Finance 367: Research Analyst Report
The Hershey Company
Yi Yang; Pasquale Pacella
3% of Hershey’s total net sales.S. Hershey’s sales to one of its largest customers McLane Company. mass merchandisers. vending companies. Twizzlers. McLane Company. baking ingredients. and Africa. Kit Kat. etc. chain drug stores. The firm is currently employing 14. Hershey. From a farm boy who never received much education to the founder of the largest chocolate manufacturer in North America and a global leader in sugar confectionary with $16. Chart or table summary of Merits and Risks Risks Relatively higher beta than competitors Increasing in prices of key product ingredients. is the primary distributor of Hershey’s products to WalMart Stores. accounted for 22.05 billion market capitalization (43% share of the domestic chocolate market). chain grocery stores.000 people worldwide. Milton Hershey created a company that sells its products in 70 countries within North America. dollar stores. Mounds. Inc. such as cocoa. Hershey’s business model focuses on high volume and low margin. and beverages. concessionaires and department stores. including chocolate and confectionery. the firm generated 84% of its sales from the U. Caramello. convenience stores. Currency volatility of international operations Barrier to enter foreign markets Greater competition due to increased consolidation activities in the confectionary industry More long term debt than key competitors Difficulty of management control due to expansion into foreign markets Increased marketing expense Dependence on key suppliers and customers Dependence on domestic market Merits Higher return and Sharp Ratio than the industry average Hedging against currency volatility and commodity price increase Relatively low sales volatility compare to competitors Relatively high growth compare to competitors (see key ratio analysis) Strong customer relationships Powerful partnerships with suppliers High brand reputation High Involvement in the community Page 1 of 17 . In the year of 2011. and global licenses for York. Jolly Rancher. The more than100-year old company offers products. mint refreshment and gum. Health. licenses for Cadbury.S. Rolo. Financial Analyst Report I. In 2011. milk. sugar. Ice Breakers along with U. wholesale clubs. peanuts.. Brief Company Overview The story of The Hershey Company begins with the tale of one inspiring and determined pioneer: Milton S. under more than 80 brands. Pasquale Pacella. Milk Duds. II. Reese’s. Kisses. Inc. Inc. toppings. and Whoppers. Some of its famous product lines include Hershey’s. snacks. Middle East. Good & Plenty. Asia. Europe. Majority of Hershey’s customers are wholesale distributors. domestic market.Yi Yang. Almond Joy.
making chocolate does not require superior expertise. It has already established itself as a cultural icon for brand innovation. the candy manufacturing industry generates approximately $150 billion in annual revenue. candy manufacturing industry has approximately 1. Threat of new entrants Hershey has been a key player in the candy manufacturing Industry for more than 100 years. jewelry makers. peanut. new entrants will not have access to distribution channels. some retail industries can also compete with the candy manufacturers.600 companies with combined annual revenue of $20 billion.S. wholesale clubs.S. Hershey may find it difficult to permanently lead the chocolate manufacturing segment. Mars. market include Nestle. The key ingredients for Hershey’s products are milk. convenience stores. Secondly.S. In addition. mass merchandisers. The Hershey Company is still America's largest chocolate company. Threat of substitute products and services Hershey faces a high threat of substitute products and services due to several reasons. it still faces fierce competition with the big market players mentioned above. The successful operation of Hershey largely depends on these suppliers.K. Some of these manufacturers not only manufacture well-known chocolate products. switching to different products may be costly. Tootsie Roll Industries. therefore. dollar stores. chain grocery stores. In addition. based. The threat of new entrants is low due to the existence of economies of scale. the candy manufacturing industry faces intense competition with other types of snack manufacturing industries. such as Frito Lay. Finally. chain drug stores. and the flavors can be easily replicated. The Chocolate manufacturing industry requires large up-front capital investment. and Russell Stover Candies. Hershey specializes in manufacturing chocolate. Global wise. Firstly. cocoa. vending companies. company Kraft). candy especially chocolate is used as gifts during special holiday seasons. Financial Analyst Report III. which is also costly. The general public recognizes and relied on its products. such as vanilla. Industry Overview-The Candy Manufacturing Industry The U. Pasquale Pacella. Rivalry among competitors Although Hershey is one of the few candy makers that specialize in manufacturing chocolate. Bargaining power of buyers The bargaining power of buyers (wholesale distributors. Hershey has to compete with flower stores. The big key players outside the U. Cadbury (U. concessionaires and department stores) is relatively low due the existence of buyers’ switching costs. Ferrero. Finally. and sugar. and Meiji Holdings. Hershey has already built its brand value among consumers. the new players need to go through the scrutiny of government regulations and inspections. Page 2 of 17 . Barry Callebaut. Major companies include The Hershey Company.Yi Yang. It needs to compete with alternative flavors. In addition. Consumers have established preference and trust for Hershey’s products. There are not many substitutes for these raw materials. owned by U. Bargaining power of suppliers The bargaining power of suppliers is medium to high since the suppliers are concentrated. In spite of the intense competition among some key players. and other retail stores (especially when people nowadays become more and more health conscious). For instance. but also produce other popular candy brands.
67 billion. Detailed Company Analysis The Hershey Company reported sales revenue of $6.7% of sales. The Hershey Company updated its sales growth to 7%-9% for the fiscal year of 2012. This number is higher than the 63 days of sales in inventory in 2010. By December 2011. In other words.50 million. The current stock price fluctuates around $70 per share. which is equivalent to 0. Financial Analyst Report IV. when the sales were $5. The Hershey Company has been paying dividend for six consecutive years.11 times the book value. compare to the previous estimate of 10%-12%.08 billion for the year ending December of 2011. domestic market. In 2010. cost of goods sold totaled $3. As of 09/28/2012. However. Pasquale Pacella. the firm’s return on equity in 2011 (69.96 million. In fact.8%).13 billion. The company’s inventory aggregated $648. an improvement compare to the 25 days of sales in 2010. At the end of 2008. The long term debt to equity ratio of the firm was 2.49 dividend per share. the stock price was $34. the firm’s R&D expense totaled $30. of which 84. The Hershey Company’s stock has been increasing in value.20 million expense for resarch and development.Yi Yang. In the past three years.29 billion. which is equivalent to 24 days of sales.50 million.00. The Hershey Company paid $1. In 2011. the company traded at 2. the sales revenue at The Hershey Company has been increasing every year since 2006. 24. The Hershey Company’s earnings before extraordinary items have increased by a total of 102%. The gross profit margin is slightly higher in 2011 than 2010.50 billion total liabilities.5% of its sales revenue. The company has been trying to expand into new markets. In the year of 2011.1%.1 times its earning. The total sales revenue of The Hershey Company aggregates to $5. 16. With $3. The Hershey Company had 72 days of inventory on hand.7%) was slightly lower than 2010 (70. For the 12 months ending 7/1/2012. The accounts receibale in 2011 were $399.1 times in 2011.29 billion cost of goods sold in 2011.3% of sales which is higher than the 9% in 2010.2% increase from 2010. Given the disappointing results of Hershey’s joint venture in India. The Hershey Company incurred $32. of which $1.S. Inspite of the economic crisis since 2008. which was equavalent to a dividend yield of 2.6 times its sales. which indicates a 7.1% of sales. in which the cost of goods sold totalled 54.4% was generated in the U.74 per share. Hershey Co. The Hershey Company had $3. Since 2008. The earning before extraordinary items at The Hershey Company in 2011 totaled $628. or 10.95 million as of December 2011. said it “agreed to buy out the minority shareholders in its loss-making Indian candy and beverage venture for an undisclosed sum. It also changed its expected earnings per share growth to 12%-14%. the 2011 gross profit margin is the highest of the past five years. On 7/26/2012.08 billion sales reveue in 2011. or 54. which is also 0.5% of the sales revenue. the firm turned over its inventory 5. These multiples were higher than most of Hershey’s competitors. Page 3 of 17 .75 billion was long term debt. Of the $6. sales in foreign markets were up 10%.
since India is an important market. In addition. and another 6% from another unnamed minority shareholder.17 as average and 0. the S&P 500 only has a yield of 3%. and sugar. However. 2012.P Bilbrey. 0. the dairy market is highly illiquid and difficult to hedge. a press releases from Hershey and Godrej said. Hershey said it will assume about $47. The Hershey Company will buy the 43% stake in venture Godrej Hershey from India’s Godrej Industries Ltd.justifies the downside risk taken by the investor (Sortino ratio) . candy brands. Hershey will make necessary investments in India to accelerate growth. Treynor and Sortino ratios are above the SP500 and the industry average. Given the dry weather across western Africa caused by El Nino.A. According to J. The chocolate manufacturer has a very low beta. this means that HSY generated a return that . has yield a stunning 19% compounded annual growth rate in 2007-2012 whereas the industry average has a compounded annual growth rate of 8% within the same time span. The year of 2012 should proceed smoothly for The Hershey Company since the firm has been hedging against the commodity inflations for some key ingredents: cocoa. The unsystematic risk is even lower than the systematic one so we can conclude that HSY has low risk.27 vs. Overall. the company has been very confident about its further growth and expansion into new markets. The prices of sugar have been extremely volatile compare to other agricultural commodities.justifies the overall risk taken by the investor (Sharpe ratio) . 2012. 1 Please refer to Appendix A Page 4 of 17 . The Hershey Company also expressed that it will not change the financial outlook provided by its second quarter earnings release.6 million in debt along with the venture’s related manufacturing facilities. Investment Risks Historical Return and Risk1 We discovered that HSY. and Nestle S.Yi Yang. the president and chief executive at Hershey. Hershey’s past financial statements indicate that commodities and packaging make up 60% of the company’s cost of goods sold. the venture had net sales of $69. However.37 million. Both the Sharpe. and beverage brands. Financial Analyst Report clearing the decks for the American firm to compete on its own in a market dominated by rivals Kraft Foods Inc.15 for SP5000) does not worry us because it is supported by an outstanding return. dairy. cocoa production may not be able to satisfy the global demand in the future. V.” according to an article released by WSJ on September 10. This means that a large portion of such relative risk is due to upside risk rather than downside risk. For the fiscal year ended March 31. since it works in a consumer staple sector which is widely recognized as an anti-cyclical business.73 million with losses of $13.justifies the systematic risk taken by the investor (Treynor ratio) The high relative risk (0. Pasquale Pacella.
8 times higher than interests in 2011. Therefore. Surprisingly. milk and sugar. Finally the increased consolidation in the global confectionary arena (an example is Kraft’s acquisition of Cadbury) could lead to greater competitive pressure on HSY.126 vs. However.06 vs. peanuts. Operating. To explore the sensitivity of Hershey’s stock prices. which far exceeds the industry average and the second-best company (Kellogg’s Z-Score: 1. the interest rate paid on debt are equal to 5. the industry average of 0.Yi Yang. The company primary product ingredients include: cocoa. do not have a statistically significant correlation with Hershey’s stock returns.6.665). Financial Analyst Report Hershey’s Risk Factors2 As a candy manufacturer. the main ingredient used in Hershey’s products. Nestle. oil. cocoa. sugar. This is a sign that the company has effectively managed to hedge against rises in prices of cocoa using derivatives.66. and some big market players such as Kraft and Tyson Foods. It generated 15% of sales revenue abroad in 2011. Tyson Foods. The Hershey Company is currently holding manufacturing plants in Canada and Mexico. we ran a regression analysis3 on HSY’s weekly stock returns using the following as independent variables: weekly stock returns of competitors (Kraft Foods. the company may face risks caused by volatilities of currency values. the company disclosed that the prices of peanuts are difficult to hedge due to the lack of liquidity of the peanuts derivative market. S&P500. In addition. We discovered that: HSY’s stock returns have a statistically significant positive correlation with the volatility in financial markets. the prices of cocoa.118 which is much lower than the industry average (0. the interest rates. 2 3 Please refer to Appendix B Please refer to Appendix C 4 Altman Z-Score allows the estimation of a firm’s default risk. Kellogg’s).98). as well as the option market volatility (VIX). The firm’s financial leverage might seem to be a matter of concern (2. Another risk of Hershey’s foreign market expansion plan is the possibility that many of those foreign markets might have already been breached by Hershey’s competitors. Pasquale Pacella.62% is the average). The Hershey Company is exposed to the risks caused by volatile commodity prices. computed as the coefficient of variation of sales revenues in the past 10 years was lower than its competitors (0. 0. so we think that the company is using the leverage wisely to elevate the return for stockholders equity. Its 2011 operating leverage was 0. Business Risk. The firm is also trying to expand in China and India. currency risk may not be a significant concern because the company disclosed that it has been using derivatives to hedge against it.149). Assessing Default Risk Using Altman Z-Score4 The regular Z-Score for the food processing industry is 1. However. However Hershey was also able to generate a cash flow that is 11. HSY has the highest Z-Score of 2. and gold prices.15% (5.79). Please refer to Appendix D 5 Please refer to Appendix E Page 5 of 17 . Tootsie Roll Industries. Thus we can conclude that Hershey has a relatively low business risk. and Financial Leverage5 HSY’ sales volatility.
59%. We think the candy manufacturer.84 was turned into cash while competitors are able to receive $7. Giving a glance at FCF/Sales and FCF/Net Income.stern.Yi Yang. Its quick ratio is far above 1x and quick ratio is roughly one. We estimated that the cost of 6 Using Mondelez. Financial Analyst Report VI. and at the same time raising product prices. 3. The cost of debt has been calculated by dividing the LT interest by the LT debt. Nestle and Tootsie Roll as peers. and earnings. the fixed assets turnover ratio is also higher than the industry average (4. General Mills. ROE. Both ratios are above the industry average. The firm’s liquidity does not worry us. Hershey’s ROA. Investment Merits Hershey has been generating remarkable high growth in stock price. We adopted the beta computed by Value Line9. HSY has one of the highest Capex/Sales ratios among its competitors. compared to 0. The bad news comes when looking at the free cash flow ratios. is three times the industry average. we deduce that for every $100 of sales only $3. Hershey managed to keep a relatively high operating margin at 17. At the moment.734. should have solid growth rates in the future. Each HSY worker generates $459. The firm’s ROE is especially outstanding. It has an asset turnover of 2x. Valuation DCF Assumptions and Results7 We presumed the 1928-2011 geometric average return on stock8 as market return.35% compare to the industry average of 10. In addition. It is likely that Yahoo Finance and we used data from S&P 500 to calculate the beta while VL did it with a broader stock index (maybe the Wilshire5000).80x). It seems that HSY had some problems in turning sales and earnings into free cash flow. with its superb return on shareholders’ equity. which is 72% compared to 24% of the industry average. 0. The firm’s merits can be explored in great detail through the financial analysis below: Financial Ratios Analysis6 The firm’s productivity of labor and capital is one of the highest in the candy industry.05. which depends on ROE and the payout ratio. far exceeding its competitors.01 for the same amount of sales.html 9 We preferred to use Value Line beta because we think betas estimated by us and Yahoo Finance are too low (0.03. with a 45% market share. the 1928-2011 geometric average return on T-bills as risk free rate. it is the leading player in the US chocolate segment.268 of sales versus the industry average of $357. Kellogg.06x vs. The sustainable growth rate. VII. Pasquale Pacella.edu/~adamodar/New_Home_Page/datafile/histretSP. please refer to Appendix F 7 See Appendix I for the DCF valuation 8 Please refer to http://pages. Page 6 of 17 .65 obtained by VL). By cutting operating expenses through shutting down inefficient plants and reorganizing supply chains. sales. and ROIC are more than doubled the industry average. Looking at growth opportunity.nyu. Looking at profitability.
we could not find any public information about both companies. Hershey Average Trailing P/E 23.37 2. and General Mills. Danone. Nestle has a market capitalization of $210B while Tootsie Fair Prices Roll has a market cap of $1.38 We used the following firms as comparables: Tootsie Roll.57B.69 67. It is likely that Morningstar consider both/either higher market risk premium or lower risk free rate. Our assumptions include: 1. For this reason we run a series of sensitivity analysis (i. 11 Please refer to Appendix G 12 Please refer to Appendix H 13 Mars is not publicly traded while Kraft’s key stats are not available on Yahoo Finance.59 Campbell Soup. We got $26.6% which is approximately equal to the current stock price (around $70).65 In calculating the terminal value. EV/EBITDA 12.4 as interest coverage ratio. Hence.64 Forward P/E 19. however. Price/Sales 2.11 They are all US-based firms which operate in the food processing EV/Sales 2. Nestle. Kellogg. Cost of Equity Cost of Debt % Debt % Equity Tax Rate 7. we assumed that HSY’s operating margin equals to the 2011 industry average. The 4% growth rate gives a fair stock price of $70.05 It is possible that our selected comps may not effectively help us predict Hershey’s performance. We used 4% as the terminal value sales growth rate. and 5.94 as the floor price. For instance.5% 5% 11. CAPEX rates. we changed the growth rate to see its effect on Market Return 9. Overall Avg.62% as the market risk premium.74 1.1% 88.95 5.60 is too low. 10 Morningstar claimed HSY’s WACC to be 9%. Considering Hershey’s Partial Avg.86 industry.e.2% predicted fair price).14 68. Heinz Foods. Beta 0. but we are sure about assumptions made by us.65 18. $ however. We think the presence the two firms may skew our analysis since the industry average market cap becomes Forward P/E $ 68. Price/Sales $ 65.9% 35% LBO Valuation Model12 We used the Leveraged Buyout Valuation to determine the minimum price WACC 6.51 1. $ current market price ($70). Our result is not so different from that assumed by the firm. and its growth opportunities. we decided to include Nestle and Tootsie Roll.83% for The Hershey Company. To compute the sales growth. we used a linear fading model11. Page 7 of 17 . Pasquale Pacella.86 PEG Ratio 2.38 $40B while HSY only has market cap of $16B.56 11. EV/EBITDA $ 73. 3. and net working capital in the period of 2012-2017. Financial Analyst Report capital for Hershey is 6.48 13.61% as the risk free rate.64 Multiples Valuation We ran a multiples valuation excluding Nestle and Tootsie Roll.60. Price/Book 14.38 It worth say that it would have been better to include Kraft and Mars13 as comparables.Yi Yang. we got a target price of $44. we think the target price of $44. which could be a little too high if Hershey will not successfully expand in China and India. operating margin.83%10.16 Risk-Free Rate 3.
68 as fair prices using DCF.5% rate turned into a $86.14 VIII. Financial Analyst Report We found that it is a common practice among investment firms to use P/E and EV/EBITDA ratios when dealing with food and beverage companies. Pasquale Pacella. Hershey’s stock price was $70. The predicted fair price for HSY is $71. We calculated an average of fair value prices obtained using P/E and EV/EBITDA.79. We got $64. Recommendation To sum up we have $70.67 while a more optimistic 4. 2012.15 Earlier in our DCF analysis we discovered that using a 3.Yi Yang. FCFE and Multiple Valuation models respectively.16. Page 8 of 17 .57 fair price.5% pessimistic sales growth rate in the terminal value leaded us to a fair price of $50.42. We are confident to assume such figure as our target price. which is below the $72. It does not seem to be much upside potential for the stock. Free Cash Flow to Equity Valuation We performed a FCFE Valuation using same assumption adopted for DCF analysis and we got almost the same result obtained through DCF valuation. We’re glad to see that we agree with other analyst’s opinions! Considering a set of 13 analyst reports we get $72.57 14 15 See FCFE Valuation Exhibit for more information. The average is $70.21. $68. Therefore our recommendation is HOLD.67 and consider sell it when it is above $86.79 fair price estimated by our DCF and FCFE analyses.00 and $73.59-$71.79.12 as of October 24th. $71.46 as mean and median target price and the mean recommendation is HOLD. Therefore we suggest considering buy HSY when it is below $50.
30 1748.453 983 341 642 264 330 122 $454 $398 2015 $7.118 963 334 629 216 324 166 $354 2012 $6.6 617.274 943 327 616 292 316 45 $546 $20.276 15855.037 360 677 232 349 179 $382 2013 $7.57 5.844 6.5% $58.16 4.081 5.67 4.014 986 342 644 248 331 153 $408 $382 2014 $7.Appendix I DCF Valuation Exhibit Sales Operating Expenses EBIT (Operating Profit) Taxes NOPAT Depreciation CapEx Change in NWC FCF Terminal Value Discounted FCF Present Value Plus Net Cash Minus Long-Term Debt Minus Other Liabilities Company Value Shares Outstanding Intrinsic Value Per Share 17654.465 Sales Fair Value Growth 3.5% $86.899 $16.216 7.550 5.436 6.16 2011 $6.639 906 314 592 303 303 0 $592 Page 9 of 17 .0% $70.0% $111.25 567.513 1.545 7.0% $50.876 968 336 633 278 325 86 $500 $410 2016 $8.000 6.95 Terminal $8.67 226 $70.18 3.
045 1565 17.51 2.65 19.83 1.51 34.22 4.74 17.77 18.78 10.41 2.36 1.34 1. 209.654.18 0.91 46.94 2.37 2.25 3.48 2.86 2.04 Nestle S.47 12.58 5.69 Page 10 of 17 .51 26.63 13.09 H.73 N/A N/A 2.04 Campbell Soup 11.51 14.08 Tyson Foods Inc.44 22.08 2.31 13.03 13.52 15.27 19.A.81 19.58 7.04 EV/EBITDA Exhibit Average EV/EBITDA EBITDA EV Debt Equity Value Shares Outstanding Fair Value $11.75 14.61 45.43 13.39 8.99 0.95 17.425 226 $73.41 General Mills 25.51 3.93 9.1 1.93 11.09 1. 5.59 2 11.34 23.285.31 Kellogg Company 18.37 19.6 3.49 2.74 12.37 2.09 224.28 1.95 2.8 7.21 N/A N/A 1.92 1.09 10.33 1.75 9.425 631 16.48 15.37 2.85 11.23 2.37 1.93 16.6 13.42 12.51 14. J. Heinz 18.Appendix II Multiples Valuation Exhibit Hershey Market Cap EV Trailing P/E Forward P/E PEG Ratio Price/Sales Price/Book EV/Sales EV/EBITDA 15.16 1.56 Tootsie Roll 1.24 0.43 2.10 1.66 Average 40.29 32.73 Danone 37.56 15.57 1.
78 $ 2.00% 22% 21% 55% 45% 2.15 Sales $ 28.77 $ 8.08 $ 3.53 $ 3.74 $ 2.15% PV of Cash Flow 4% 11% 20% 50% 50% 2.27 $ 7.85 $ 30.07 EPS $ 6.78 $ 60.15% Value of Stock $ 71.88 $ 3.79 $ 7.14 Year FY12 FY13 FY14 FY15 FY16 Terminal Page 11 of 17 .62% 6.65 5.50% 0.65 5.35 $ 6.71 $ 2.30 $ 3.87 $ 33.Appendix III FCFE Valuation Exhibit Sales per share from year just ended FY1-5 Sales Growth Rate Profit Margin Return on Equity FY1-5 Retention Rate FY1-5 Payout Rate FY1-5 Risk Free Rate for FY1-5 Beta FY1-5 Market Risk Premium FY1-5 Cost of Equity FY1-5 Sustainable Growth Rate Profit Margin Sustainable ROE Sustainable Retention Rate Sustainable Sustainable Payout Risk Free Rate (Sustainable) Beta (Sustainable) Risk Premium (Sustainable) Cost of Equity (Sustainable) 26.03 $ 35.96 7.18397 Dividend $ 2.50% 0.79 $ 2.62% 6.32 $ 4.81 Terminal Value 78.81 $ 39.76 $ 2.34 $ 37.
0001 0.20 0.27 0.84 4.03 0.79 0.99 K 3.01 2.14 9.03 0.22 0.39 0.15 1.14 0.04 0.05% 4.72% 5.01 15.Appendix A Historical Return and Risks HSY CAGR 16 SP500 3.11 0.55% 2.12 0.56 0.00 176.06 0.19 0.24 0.30 0.14% 176.01 0.49 17 St. Relative Risk Beta Sharpe Ratio Sortino Ratio Treynor Ratio Unsystem. Risk Systematic Risk 0.0118 24. Avg.08% 3.10 0.71 4.02 0.07 0.84 0.90 0.09 0.53 0.45 TR 3.20 Ind.07 0.56 0.00 0.05 0.0115 23.03 0.0028 6.17 0.0039 8.46 10.80% 5.0070 13.0077 24.56 18. Dev.02 0.08 0.08 16 17 Compounded annual growth rate calculated on the 2007-2012 period Measured as coefficient of variation of the price during 2007-2012 period Page 12 of 17 .75 4.25 TSN 3.00 0.90 1.15 0.66 0.92 NSRGY 11.14 1.68 0.98% 12.69 2.64 KFT 10. 7.42% 10.
2 1 0.4 -0.2 COCOA SUGAR VIX OIL GOLD BAR AGG SP500 KFT NSRGY TR TSN K -0.8 Statistical significance of Risk Factors 8 6 4 2 t stat 0 COCOA SUGAR -2 VIX OIL GOLD BAR AGG SP500 KFT NSRGY TR TSN K -4 -6 -8 18 See appendix C for the regression results Page 13 of 17 .6 -0.Appendix B Risk Factors Regression Analysis18 Sensitivity to Risk Factors 1.2 0 -0.6 Coefficients 0.8 0.4 0.
151664118 -5.697293882 1.158226927 TSN 0.524606468 0.017281359 0.10674579 0.083849134 TR 0.06022062 SUGAR -0.0% Upper 95.019613839 0.Appendix C Regression Analysis Regression Statistics Multiple R 0.78642 Coefficients Standard Error Intercept -64.44239E-05 2.089108239 t Stat -5.103297552 -0.006304091 0.043645479 0.027572169 OIL -0.022579161 0.67247885 0.006304091 0.038716544 -0.271108973 0.668649757 -3.336910268 -0.041953245 0.128069481 0.352759122 -0.103297552 -0.1661E-151 Residual 208 1025.238225866 -0.25493151 COCOA 0.012559931 0.697293882 1.03259839 0.9703 Adjusted R Square 0.67247885 -87.051859794 3.95227E-08 0.522661 567.04661839 0.9686 Standard Error 2.762881883 2.28494E-10 0.002250372 0.03259839 0.2204 Observations 221 ANOVA df SS MS F Significance F Regression 12 33582.000176767 -0.257055875 0.796649687 0.348935398 -0.496116545 6.129512408 0.424073408 0.9850 R Square 0.174775036 -0.336910268 0.297134374 -4.129512408 0.257055875 -0.934236152 0.0% -87.267444419 2.700277538 -0.108512357 K -0.6104229 1.183869137 0.04032337 0.040825074 0.955530233 5.86084091 11.24894963 4.51449 4.04920298 -42.76355E-07 1.555919526 0.352759122 0.043645479 0.258015973 3.442790839 6.128069481 0.27193 2798.341994503 0.337268836 0.021734356 0.174775036 -0.000176767 0.129388702 SP500 0.887294773 P-value 2.555919526 -0.015971664 VIX 0.67915478 0.071810461 0.012559931 0.022606164 1.093409993 -1.238225866 0.271108973 0.04920298 -42.700277538 -0.17160718 0.00186295 1.08126E-09 0.424073408 0.348935398 Page 14 of 17 .019613839 0.162311987 NSRGY 0.011114303 BAR AGG 0.138334857 0.930358126 Total 220 34607.04032337 -0.034507482 GOLD -0.5562E-08 Lower 95% Upper 95% Lower 95.14904E-05 2.038716544 -0.337268836 0.005082202 KFT 1.934236152 0.
40 0.118 MDLZ 2.39 0.Appendix D Altman Z-Score HSY Working Capital/Total Assets Retained Earnings/Total Assets Equity Mkt Value/Total Assets EBIT/Total Assets Sales/Total Assets Altman Z-Score Safe.66 0.06 11.57 Grey Grey Appendix E Business Risk.070 19 20 CV stands for coefficient of variation.211 1.05 0.78 0.00 0.29 0.20 0.76 2.17 0.2 2.74 0.01 4.29 0.05 0.6 5.02 0.688 NSRGY 2.404 K 6.86 6.07 1.24 0.07 0.665 0.20 -0.02 0.11 0.11 23.04 0.57 0.52 0.109 0.37 0.62 1.66 1.18 0.62 0.03 0.20 0.66 GIS 3.96 7.07 0.08 0.02 1.15 1.51 1.02 0.159 0.01 0. Page 15 of 17 . Grey or Distressed Zone? MDLZ GIS K NSRGY TR Average 0.41 0.33 0.00 0.7 5.6 6.04 0.11 2.109 0. Computed as 10 years average of the ratio between the change of the EBIT out of the change of the sales. Operating and Financial Leverage Financials Financial Leverage Debt/Equity Interest coverage ratio Return on debt % Business Risk CV(Sales)19 Operating Leverage20 HSY 5.149 0.00 0.239 TR 1.01 -0.157 0.88 1.923 Average 3.84 1.92 12.126 0.60 Grey 0.04 0.07 0.15 0.5 7.13 0.02 -0.79 Safe Distressed Grey Grey -0.8 5.
97 10.74 0.32 1.21 -0.76 4.43 2.74 0.01 7.01 61.268 $430.897 $481.49 3.516 $244.01 3.41 15.11 6.68 2.88 0.51 6.06 3.93 5.546 3.84 4.84 1.37 3.776 4.07 -8.99 11.734 1.Appendix F Financial Ratios Analysis21 Financials Efficiency Revenue per Employee Asset Turnover (Average) Fixed Assets Turnover Profitability Return on Assets % Return on Equity % Return on Invested Capital % Free Cash Flow/Sales % Free Cash Flow/Net Income Liquidity Current Ratio Quick Ratio Growth Opportunities Cap Ex as a % of Sales Payout Ratio % Sustainable Growth Rate Historical Sales Growth 3-Year Average 5-Year Average 10-Year Average HSY MDLZ GIS K NSRGY TR Average $459.73 9.39 1.78 7.01 0.4 0.06 51.48 71.192 7.23 2.94 4.31 1.84 0.51 11.64 2.07 31.12 3.4 36.04 6.57 10.83 23.10 5.36 1.6 2.93 0.9 12.1 10.5 0.13 2.11 0.53 7.37 62.45 0.96 0.06 0.798 14.751 $431.792 1.2 3.88 24.756 21 2011 Data obtained through Mergent Online Page 16 of 17 .81 4.26 58.57 0.57 5.39 0.1 23.3 5.04 9.78 5.47 0.79 4.97 3.08 4.89 4.46 12.58 6.1 9.77 3.81 8.28 6.4 31.91 0.66 0.468 0.204 $375.93 9.7 -3.66 3.84 15.596 3.5 5.5 49.18 50.72 50.58 0.878 5.95 0.303 $290.72 4.68 0.62 0.61 4.77 7.
243.993.009.000 5.00% 14.68% 34.Appendix G DCF Assumptions Actual 2011 15.60% 34.46 9.314.300.62% 3.207.55% 3.49% 4.845.57 5.47% 10.55% 2.520.407.00% Appendix H Simple LBO Valuation Model Simple LBO Valuation Model EBIT Interest Coverage Ratio Interest Risk Premium Treasury Bonds Enterprise Value Total Price we can pay Target Debt Amount Total Excess Cash After Paying off debt Use Excess Cash Shares Outstanding Price Per Share 962.428.451.03% 4.100.000 567.054.44% 4.55% 3.68% 5.14% 3.68% 34.64% 1.22% 12.654.74% 2.61% 7.96% 14.94 Page 17 of 17 .025.23% 5.72% 6.55% 3.55% 0.55% 3.55% 3.09% 0.00 26.74% 4.243.83% 34.33 1.97% 6.33% 3.68% 34.68% 34.46 6.68% 34.73% 4.243.55% 2.19% 1.85% 3.000.09% 13.68% 5.00 1.4 687.74% Assumed using a linear fading model Assumed 2012 2013 2014 2015 2016 TV 7.34% 11.746.458.55% 3.107.46 223.
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