PepsiCo is a global food & snack (53% of revenues) and beverage (47% of revenues) company founded in 1898 year. The main brands are: Pepsi, Mountain Dew, Lay’s potato chips and many more.
(source: PepsiCo materials for investors)
Company is highly diversified all around the world – this makes financial results not so volatile over time.
During the last conference call outlook for 2015 was updated:
- Core constant currency EPS growth target raised to 9 percent (previously 8 percent)
- Foreign exchange translation expected to adversely impact core earnings per share by 11 percentage points
- On track to deliver approximately $1 billion productivity savings and $9 billion cash returns to shareholders
I think that currency problems are temporary. Apart from it company’s growth is in line with my expectations (payout ~62% + ROE ~27% -> 10% growth). What investors should take into account are strong cash returns – $9B = ~6% return yield.
As it comes to financials (estimates):
Market cap ~ $142B
Net debt ~$22B
Payout ratio ~62%
Beta = 0.78
Dividend yield 2.9% + buy-back another ~3%. In total cash returns around 6%.
Estimated valuation ratios:
P/E = 20 (forward)
EV/EBITDA = 13.5 (trailing twelve months)
PepsiCo is one of The Dividend Aristocrats – paying from 1973. Currently share price is about all-time high and dividend yield is 3%. For last 6 years company was paying about 3% yield so current level is neutral for me. Historically company was paying around 1-2% (but business was growing). Nothing special.
Similarly to a broad market index company is about its’ all time high levels. For me personally it is very hard to buy in such moment. I invest long term so I can wait for special occasion. As we can see from chart above drawdown around 25% – 30% is a good point to buy shares. It means around $70 – $75.
Comparing to Coca-Cola:
- Both share prices are around all time high levels.
- Valuation similar – both P/E and EV/EBITDA
- Strong correlation (around 0.9)
For me it is no difference whether you buy Coca-Cola or PepsiCo.
Summing up, current valuation is high and I will wait until share price falls. If both share prices of Coca-Cola and PepsiCo fall then I will flip a coin which one should I buy.
Disclaimer PEP – no position