Post on 26-Jan-2015
description
Brad Schwer
PepsiCo (PEP)
Sector: Consumer StaplesIndustry: Soft Drinks
Recommendation: BuyEstimated Value: $71.06-$79.04
Current Stock Price: $66.29
Company InformationFiscal year ends 12/31Non-alcoholic Carbonated and non-carbonated beveragesVarious foods and snacksHeadquarters in Purchase, NYBeverage concentrates, fountain syrups, and finished
goods
Familiar ProductsPepsi/Diet PepsiMountain DewAquafina (bottled water)7UPSoBe LifewaterTropicana Lays, Doritos, RufflesQuaker oatmeal/Rice-A-Roni
Direct Competitors
Business Units1. PepsiCo Americas Foods*2. PepsiCo Americas Beverages*3. PepsiCo International
* Includes Latin American business
PepsiCo 2009
37
26
11
8
7
11
Operating Profits by Segment
Frito-Lay North AmericaPepsiCo Beverages Amer-icaUnited Kingdom and EuropeMiddle East, Africa, and AsiaQuaker Foods North AmericaLatina America Foods
Source: Edward Jones
Sales and EPS GrowthDEC DEC DEC DEC DEC
2009 2008 2007 2006 2005
Revenue (in billions)
43.23 43.25 39.47 35.14 32.56
% Change -0.04% 9.57% 12.34% 7.91% N/A
GAAP EPS (as reported)
3.77 3.21 3.41 3.34 2.39
% Change 17.45% -5.87% 2.10% 39.75% N/A
Baseline EPS 3.71 3.67 3.38 3.00 2.66
% Change 1.09% 8.58% 12.67% 12.78% N/A
•Compounded sales growth rate: 7.3%•Compounded Baseline EPS growth rate: 8.7%
Value Line ProjectionsFiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full YearEPS 2010 0.80 1.12 1.18 1.05 4.15
Fiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year
EPS 2010 0.75 1.11 1.23 1.08 4.18
12% Yr to Yr Gain
12% Yr to Yr Gain
Baseline Projections
Value Line ProjectionsFiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year
Sales 2010 ($ billions)
9.60 12.25 13.68 15.0 50.5
Fiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year
Sales 2010 ($ billions)
9.57 13.88 14.67 17.04 55.16
Baseline Projections
28% Yr to Yr Gain
17% Yr to Yr Gain
SWOT AnalysisStrengths Weaknesses
•Brand name•Cash position•Diverse products•Pepsi Refresh Project
•Domestic focus•Unhealthy products
SWOT AnalysisOpportunities Threats
•Expanding global presence•Energy drinks•Non-carbonated beverages•Healthier food (Baked)•Aggressive CEO (Indra Nooyi)
•Potential soft drink tax•Health trend•Increased competition
P/E ValuationCompany Ticker EPS
Growth (5 yr)
Rev Growth (5 yr)
Beta Forward P/E Dividend ROE
PepsiCo PEP 11% 9% .68 16.0 2.7% 41%
Coca-Cola KO 8% 9% .71 16.0 3.2% 30%
Dr. Pepper Snapple
DPS 10% 4% .89 14.5 1.8% 17%
Kraft Foods KFT 8% 6% .60 15.0 3.7% 15%
Average Forward P/E for S&P 500: 14.5
P/E Valuation5-year average P/E: 18Forward P/E: 16Averaged P/E multiple: 17xEstimated projection: 17*$4.18
$71.06 per share
DCF Data Input Projection Period
2009 2010 2011 2012 2013 2014 Revenue $43,232.0 $56,889.4 $61,753.1 $66,693.4 $71,361.9 $76,357.2% Growth 0.0% 31.6% 8.5% 8.0% 7.0% 7.0%
EBITDA $9,679.0 $11,377.9 $12,350.6 $14,005.6 $14,986.0 $16,035.0% Margin 22.4% 20.0% 20.0% 21.0% 21.0% 21.0%% Growth 14.2% 17.6% 8.5% 13.4% 7.0% 7.0%Dep & Am $1,500.0 $1,973.9 $2,142.6 $2,314.0 $2,476.0 $2,649.3
EBIT $8,179.0 $9,404.0 $10,208.0 $11,691.6 $12,510.0 $13,385.7% Margin 18.9% 16.5% 16.5% 17.5% 17.5% 17.5%
Taxes $1,498.0 $1,971.2 $2,139.8 $2,310.9 $2,472.7 $2,645.8EBIAT $6,681.0 $7,432.8 $8,068.2 $9,380.6 $10,037.3 $10,739.9
Unlevered Free Cash
Flow $5,814.0 $6,562.2 $7,123.2 $8,360.0 $8,945.2 $9,571.4
Equity risk premium 8%P/EBITDA 10x
ValuationDCF intrinsic value: $79.24P/E valuation: $71.06Valuation range
$71.06-$79.24Current Stock Price
$66.29 (Undervalued)
Recommendation: BuyEstimated Value: $71.06-$79.24
Current Price: $66.29
Pros Cons•Growth in emerging markets•Solid payout ratio•Increasing dividends•Acquisitions•Stock buybacks
$15 billion through 2013
•Domestic focus•Unhealthy products•Regulations
Questions from the Board of Directors?
PepsiCo vs. Coca-Cola
Foreign Currency Exposure
Generated 74% of net operating revenue from outside U.S.
Uses 72 functional currenciesCurrency impact on net revenue
2009: -11%Uses derivatives to hedge
Forward contracts Purchase currency options
Generated 48% of net operating revenue from outside U.S.
Currency impact on net revenue 2009: -5%
Uses derivatives to hedge Forward contracts Commodity contracts
PepsiCo Coca-Cola
AcquisitionPepsiAmericas
Acquired remaining 57% stakeThe Pepsi Bottling Group
Acquired remaining 67.4% stakeTotal cost of acquisition
$7.8 billionHalf cash/Half PEP common stock
Adds $4 billion in debt to PEP balance sheetIncrease in EPS of $0.15 when fully realized in 2012Create synergies of $300 million by 2012
Cost efficiency and better revenue opportunities