Despite a daily loss of 3.49% and a three-month loss of 11.27%, PepsiCo Inc (PEP, Financial) has reported an Earnings Per Share (EPS) (EPS) of 5.71. With these metrics in mind, the question arises: Is PepsiCo (PEP) modestly undervalued? This article aims to delve into the valuation analysis of PepsiCo, providing an in-depth perspective on the company's value. We invite you to continue reading for a comprehensive financial assessment of PepsiCo.
A Snapshot of PepsiCo Inc (PEP, Financial)
PepsiCo is a global powerhouse in the snacks and beverages market, boasting household brands such as Pepsi, Mountain Dew, Gatorade, Lay's, Cheetos, and Doritos. Not only does it rule the global savory snacks market, but it also stands as the second-largest beverage provider worldwide, offering a diverse range of products from carbonated soft drinks to water, sports, and energy offerings. PepsiCo's convenience foods contribute to 55% of its total revenue, with beverages making up the rest. The company has a significant hold on its manufacturing and distribution capacity in the United States and overseas, with international markets accounting for 40% of total sales and a third of operating profits.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. It is derived from three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to GuruFocus Value calculation, PepsiCo (PEP, Financial) is considered to be modestly undervalued. At its current price of $163.02 per share and a market cap of $224.40 billion, PepsiCo stock is believed to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of PepsiCo
Assessing the financial strength of a company before investing is crucial to avoid the risk of permanent loss. Factors such as the cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial health. PepsiCo has a cash-to-debt ratio of 0.15, which is lower than 80.77% of 104 companies in the Beverages - Non-Alcoholic industry. PepsiCo's overall financial strength is rated 5 out of 10, indicating fair financial health.
Profitability and Growth of PepsiCo
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over an extended period. PepsiCo has been profitable for the past 10 years. In the past 12 months, the company has reported revenues of $90.10 billion and an EPS of $5.71. Its operating margin of 13.35% is better than 69.81% of 106 companies in the Beverages - Non-Alcoholic industry. Overall, GuruFocus ranks PepsiCo's profitability as strong.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to create value for shareholders, especially if the growth is profitable. PepsiCo's 3-year average annual revenue growth rate is 9.3%, which ranks better than 69.47% of 95 companies in the Beverages - Non-Alcoholic industry. The 3-year average EBITDA growth rate is 5%, which ranks better than 53.19% of 94 companies in the same industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, PepsiCo's return on invested capital is 12.82, and its cost of capital is 7.02.
Conclusion
In summary, PepsiCo (PEP, Financial) stock is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 53.19% of 94 companies in the Beverages - Non-Alcoholic industry. For more about PepsiCo stock, you can check out its 30-Year Financials here.
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