Using the Earnings Power Value framework with a WACC of 6.6% and normalized earnings of $1.9B, The Hershey Company has a fair value of $121.60 per share. The EPV range is $94.84 – $164.25 based on WACC sensitivity (5.1% – 8.1%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 1,913 | 1,913 | 1,913 |
| (/) WACC | 8.1% | 6.6% | 5.1% |
| Enterprise Value | 23,755 | 29,194 | 37,863 |
| (-) Net debt | 4,477 | 4,477 | 4,477 |
| Equity Value | 19,278 | 24,717 | 33,386 |
| (/) Outstanding shares | 203 | 203 | 203 |
| Fair Price | $94.84 | $121.60 | $164.25 |
Earnings Power Value (EPV) estimates what a company is worth based on its current normalized earnings, assuming zero growth. It values the business as a perpetuity: Normalized Earnings / WACC. This gives a conservative floor value — the company's worth if it never grows but maintains its current profitability.
The model normalizes earnings by: (1) using sustainable gross margins (5-year average) applied to current revenue, (2) deducting maintenance-level operating expenses (average R&D + SG&A as % of revenue), (3) applying the average effective tax rate, and (4) subtracting the average excess of CapEx over D&A (net reinvestment needed to maintain current capacity).
EPV is most useful as a comparison anchor: if the market price is below EPV, the stock may be undervalued even without any growth. If market price exceeds EPV, the premium reflects growth expectations — which may or may not materialize.