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:

2015 Outlook:

  • 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%

ROE ~27.7%

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.


Drawdown risk:


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