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's Valuation Is in Line With Its Sector Averages:
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 28.0 and a P/B ratio of 12.29.
PepsiCo's PEG ratio is 2.57, 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:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $64,661 | $67,161 | $70,372 | $79,474 | $86,392 | $149,564 |
| Gross Margins | 55% | 55% | 55% | 53% | 53% | 55% |
| Operating Margins | 16.0% | 15.0% | 14.0% | 14.0% | 13.0% | 16.0% |
| Net Margins | 19.0% | 11.0% | 10.0% | 10.0% | 10.0% | 12.0% |
| Net Income (MM) | $12,559 | $7,353 | $7,175 | $7,679 | $8,978 | $18,433 |
| Net Interest Expense (MM) | $1,219 | $935 | $1,128 | $1,863 | $939 | $1,405 |
| Depreciation & Amort. (MM) | $2,399 | $2,432 | $2,548 | $2,710 | $2,763 | $2,882 |
| Earnings Per Share | $8.78 | $5.2 | $5.12 | $5.49 | $6.42 | $13.23 |
| Diluted Shares (MM) | 1,428 | 1,411 | 1,395 | 1,389 | 1,387 | 5,535 |
| Free Cash Flow (MM) | $6,133 | $5,417 | $6,373 | $6,991 | $5,604 | $6,947 |
| Capital Expenditures (MM) | $3,282 | $4,232 | $4,240 | $4,625 | $5,207 | $5,188 |
| Net Current Assets (MM) | -$41,153 | -$46,034 | -$56,365 | -$54,443 | -$53,375 | -$52,334 |
| Long Term Debt (MM) | $28,295 | $29,148 | $40,370 | $36,026 | $35,657 | $35,657 |
| Net Debt / EBITDA | 2.18 | 2.25 | 3.04 | 2.72 | 2.64 | 1.42 |
PepsiCo has growing revenues and increasing reinvestment in the business, positive EPS growth, and healthy leverage. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a stable trend. Finally, we note that PepsiCo has irregular cash flows.
