Stock (Symbol)

Pepsico (PEP)

Stock Price

$110

Sector

Food & Necessities

Data is as of

November 4, 2017

Expected to Report

Jan 27

Company Description

PepsiCo, Inc. is a food and beverage company. The Company, through its operations, bottlers, contract manufacturers and other third parties, is engaged in making, marketing, distributing and selling a range of beverages, foods and snacks, serving in over 200 countries and territories.Pepsico’s brands include Agusha, Amp Energy, Aquafina, Aquafina Flavorsplash, Aunt Jemima, Cap’n Crunch, Cheetos, Chester’s, Chipsy, Chudo, Cracker Jack, Diet Pepsi, Diet Sierra Mist and Domik v Derevne. Source: Thomson Financial

Sharek’s Take

Pepsico is doing well in a tough food environment because it’s shifting to healthier products. The company has shifted to low-calorie products, which tend to be noncarbonated beverages, and has pushed the portfolio mix 7% towards non-carb since 2010. On the snack side, Pepsico has introduced product extensions like Cheetos Paws, Jalepeno Cheetos, Spicy Ranch Ruffles and Flamin’ Hot Ruffles. Pepsico has great worldwide brands such as Pepsi, Lays, Tropicana, Quaker and Gatorade, and most of its brands occupy the #1 and #2 spots in their respective categories. PEP has provided investors with safe, steady total returns that are similar to the stock market, but at a lower risk. PEP’s Beta, which is a measure of risk or volatility, is 0.70 which is less than the S&P 500’s Beta of 1.00. The stock has grown 4% a year the past decade, while delivering a 3% yield for a total annual return of 7% per year. The company has boosted its dividend each year since 1973 — that’s 45 years — and already raised it 7% this year to $3.22 annually. Pepsico stock is off its highs and is a good value for conservative income oriented investors. Normally this company grows profits 6% a year or so, and estimates are for 7.5% growth on average the next 4 qtrs. The stock does have a P/E of 20, which is above the long-term norm, but I think it’s worth it. And with interest rates low, 3% growers are in demand right now. With PEP on a dip I will take this opportunity to add it to the Conservative Growth Portfolio.

One Year Chart

This stock has fallen because of lackluster soda sales. But the company is reacting with more non carbonated offerings, so I don’t think this is a big deal. Last qtr PEP delivered 7% profit growth vs. estimates of 4%. Sales fell 1% and were hurt by foreign exchange. Qtrly profit Estimates of 8%, 6%, 9% and 7% are solid. Pepico has beaten the street the last 7 qtrs, and if it continues to do so this company might have 8% to 10% growth coming. That’s good news for this stock. Also, the P/E has dropped from 22 last qtr top 20 this qtr, but that’s partially due to the fact I’m looking ahead to 2018 estimates to calculate my Fair Value now.

Fair Value

Six to nine years ago the stock market had lower valuations. Everything was on sale. Now we are in a higher-priced environment, which is partially caused by low interest rates (thus bonds aren’t real valuable, because they don’t pay much). My Fair Value on PEP is a P/E of 21, which gives the stock average upside for the next couple of years.

Bottom Line

Pepsico has been on a steady rise higher since the Financial Crisis, and I envision this stock continuing on its current pattern higher. And honestly, PEP could do a little better than my projections because profit growth looks to be better than the 4-6% historical norm. Plus, investors get a juicy 3% yield. PEP will be added to the Conservative Portfolio where it will rank 25th of 32 stocks in the Power Rankings.