We've been asking ourselves recently if the market has placed a fair valuation on PepsiCo. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
PepsiCo Has Elevated P/B and P/E Ratios:
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 30.6 and a P/B ratio of 13.65.
PepsiCo's PEG ratio is 2.79, 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.
Overview of the Company's Finances:
| 2018-02-13 | 2019-02-15 | 2020-02-13 | 2021-02-11 | 2022-02-10 | 2023-02-09 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $63,525 | $64,661 | $67,161 | $70,372 | $79,474 | $86,392 |
| Gross Margins | 55.0% | 55.0% | 55.0% | 55.0% | 53.0% | 53.0% |
| Operating Margins | 16% | 16% | 15% | 14% | 14% | 13% |
| Net Margins | 8.0% | 19.0% | 11.0% | 10.0% | 10.0% | 10.0% |
| Net Income (MM) | $4,857 | $12,515 | $7,314 | $7,120 | $7,618 | $8,910 |
| Net Interest Expense (MM) | -$907 | -$1,219 | -$935 | -$1,128 | -$1,863 | -$939 |
| Depreciation & Amort. (MM) | -$2,369 | -$2,399 | -$2,432 | -$2,548 | -$2,710 | -$2,763 |
| Earnings Per Share | $3.38 | $8.78 | $5.2 | $5.11 | $5.48 | $6.42 |
| EPS Growth | n/a | 159.76% | -40.77% | -1.73% | 7.24% | 17.15% |
| Diluted Shares (MM) | 1,438 | 1,425 | 1,407 | 1,392 | 1,389 | 1,387 |
| Free Cash Flow (MM) | $12,819 | $12,563 | $9,479 | $10,558 | $11,450 | $10,560 |
| Capital Expenditures (MM) | -$2,789 | -$3,148 | $170 | $55 | $166 | $251 |
| Net Current Assets (MM) | -$37,796 | -$41,153 | -$46,034 | -$56,365 | -$54,443 | -$53,375 |
| Long Term Debt (MM) | $33,796 | $28,295 | $29,148 | $40,370 | $36,026 | $35,657 |
| Net Debt / EBITDA | 1.56 | 1.86 | 2.07 | 2.73 | 2.48 | 2.39 |
PepsiCo has weak revenue growth and a flat capital expenditure trend, weak operating margings with a stable trend, and irregular cash flows. In addition, we note significant leverage. We also note that the company has positive EPS growth working in its favor. However, the firm has slimmer gross margins than its peers.
