Today we're going to take a closer look at large-cap Consumer Staples company PepsiCo, whose shares are currently trading at $185.6. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
The Market May Be Overvaluing PepsiCo's Earnings and Assets:
PepsiCo, Inc. manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, PepsiCo has a trailing 12 month P/E ratio of 38.9 and a P/B ratio of 15.01.
PepsiCo's PEG ratio is 3.22, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With Increasing Reinvestment in the Business:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $67,161 | $70,372 | $79,474 | $86,392 |
| Gross Margins | 55.1% | 54.8% | 53.4% | 53.0% |
| Operating Margins | 15.3% | 14.3% | 14.0% | 13.2% |
| Net Margins | 10.89% | 10.12% | 9.59% | 10.31% |
| Net Income (MM) | $7,314 | $7,120 | $7,618 | $8,910 |
| Net Interest Expense (MM) | -935 | -1,128 | -1,863 | -939 |
| Net Interest Expense (MM) | -$935 | -$1,128 | -$1,863 | -$939 |
| Depreciation & Amort. (MM) | -$2,432 | -$2,548 | -$3,215 | -$3,280 |
| Earnings Per Share | $5.2 | $5.12 | $5.49 | $4.77 |
| EPS Growth | n/a | -1.54% | 7.23% | -13.11% |
| Diluted Shares (MM) | 1,407 | 1,392 | 1,389 | 1,378 |
| Free Cash Flow (MM) | $5,417 | $6,373 | $6,991 | $5,604 |
| Capital Expenditures (MM) | -$4,232 | -$4,240 | -$4,625 | -$5,207 |
| Net Current Assets (MM) | -$46,034 | -$56,365 | -$54,443 | -$53,375 |
| Current Ratio | 0.86 | 0.98 | 0.83 | 0.8 |
| Long Term Debt (MM) | $29,148 | $40,370 | $36,026 | $35,657 |
| Net Debt / EBITDA | 2.1 | 2.83 | 2.34 | 2.3 |
PepsiCo has growing revenues and increasing reinvestment in the business, a steady stream of strong cash flows, and healthy leverage. However, the firm suffers from slimmer gross margins than its peers and declining EPS growth. Finally, we note that PepsiCo has weak operating margings with a stable trend.
